Can we predict the likelihood of financial distress in companies from their corporate governance and borrowing?

Mariano, Sara, Izadi, Javad ORCID: https://orcid.org/0000-0001-5607-5077 and Pratt, Maurice (2021) Can we predict the likelihood of financial distress in companies from their corporate governance and borrowing? International Journal of Accounting and Information Management. ISSN 1834-7649

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Abstract

Purpose – A primary aim of the study is to investigate the impact of corporate governance structures on the likelihood of financial distress in U.K. listed companies. The paper examines the impact of borrowing and corporate governance structures on financial distress likelihood in U.K. companies.
Design/methodology/approach – The study uses a quantitative approach with financial, governance and borrowing measures and data from 270 firm-observations between 2010 and 2018. The study analyses the impact of borrowing and corporate governance structures to indicate financial distress likelihood in British companies. Corporate governance variables such as ownership concentration, independence indicators, CEO duality, director remuneration and corporate loans are considered, as well as the UK Corporate Governance Code.
Findings – The results indicate that companies with low ownership concentration and low degree of independence are more likely to incur financial distress. Larger boards and better director remuneration can reduce financial distress likelihood and the existence of corporate loans can increase this likelihood. Empirical consideration of corporate borrowing is a new contribution to the literature.
Originality – Variables are highlighted and aggregated that have not otherwise been studied together; the UK Corporate Governance Code’s main ideas are empirically supported; the study is useful for defining corporate governance structure strategies.

Keywords: Corporate Borrowing, Corporate Governance, Financial Distress, Director Remuneration

Item Type: Article
Additional Information: This author accepted manuscript is deposited under a Creative Commons Attribution Non-commercial 4.0 International (CC BY-NC) licence. This means that anyone may distribute, adapt, and build upon the work for non-commercial purposes, subject to full attribution. If you wish to use this manuscript for commercial purposes, please contact permissions@emerald.com
Uncontrolled Keywords: Corporate Borrowing, Corporate Governance, Financial Distress, Director Remuneration
Subjects: Business and finance > Accounting and finance > Market based accounting research
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Depositing User: Javad Izadi
Date Deposited: 30 Nov 2020 13:26
Last Modified: 13 Jan 2021 14:32
URI: http://repository.uwl.ac.uk/id/eprint/7497

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