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Corporate governance and the insolvency risk of financial institutions

Journal Article


Abstract


  • We investigate whether shareholder-friendliness of corporate governance mechanisms is related to the insolvency risk of financial institutions. Using a large sample of U.S. financial institutions over the period 2005–2010, we find that corporate governance is positively related to the insolvency risk of financial institutions as proxied by Merton's distance to default measure and credit default swap (CDS) spread. We also find that “stronger” corporate governance increases insolvency risk relatively more for larger financial institutions and during the period of the financial crisis. Lastly, our results suggest that shareholder-friendliness of corporate governance mechanisms is viewed unfavorably in the bond market.

Publication Date


  • 2021

Citation


  • Ali, S., Hussain, N., & Iqbal, J. (2021). Corporate governance and the insolvency risk of financial institutions. North American Journal of Economics and Finance, 55. doi:10.1016/j.najef.2020.101311

Scopus Eid


  • 2-s2.0-85098944726

Volume


  • 55

Abstract


  • We investigate whether shareholder-friendliness of corporate governance mechanisms is related to the insolvency risk of financial institutions. Using a large sample of U.S. financial institutions over the period 2005–2010, we find that corporate governance is positively related to the insolvency risk of financial institutions as proxied by Merton's distance to default measure and credit default swap (CDS) spread. We also find that “stronger” corporate governance increases insolvency risk relatively more for larger financial institutions and during the period of the financial crisis. Lastly, our results suggest that shareholder-friendliness of corporate governance mechanisms is viewed unfavorably in the bond market.

Publication Date


  • 2021

Citation


  • Ali, S., Hussain, N., & Iqbal, J. (2021). Corporate governance and the insolvency risk of financial institutions. North American Journal of Economics and Finance, 55. doi:10.1016/j.najef.2020.101311

Scopus Eid


  • 2-s2.0-85098944726

Volume


  • 55