The role of corporate governance in forecasting bankruptcy: Pre- and post-SOX enactment

Chan, Chia Ying; Chou, De Wai; Lin, Jane Raung; Liu, Feng Ying

doi:10.1016/j.najef.2015.10.008

Cited by 20 publications

(19 citation statements)

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“…As mentioned previously, corporate governance mechanisms are key factors in determining the likelihood of corporate bankruptcy overall (Chan et al ., ). Better corporate governance (Chan et al ., ), larger ownership stakes of inside directors in publicly traded firms (Fich and Slezak, ), and large shareholder ownership in Chinese listed firms (Wang and Deng, ) are found to be negatively related to the likelihood of bankruptcy. This finding suggests that strong corporate governance, including ownership, leads to lower chances of corporate bankruptcy.…”

Section: Literature Reviewmentioning

confidence: 97%

“…It can be inferred from these points that in countries with weak corporate governance, large shareholders presumably expropriate wealth from minority shareholders for their private benefit and, subsequently, firms are likely to suffer from lower valuation and experience financial distress (La Porta et al ., ; Lee and Yeh, ). In other words, firms with lower governance quality are more susceptible to financial distress, which may lead to bankruptcy (Chan et al ., ). On the other hand, higher ownership concentration can play an effective monitoring role in reducing the likelihood of corporate bankruptcy (Fich and Slezak, ) and is expected to have a weaker effect on the risk and/or likelihood of bankruptcy in countries with better institutional quality.…”

Section: Introductionmentioning

confidence: 97%

“…Lee and Yeh () argue that financial distress can be predicted based on accounting information and corporate governance‐associated variables. Similarly, this exercise provides important information in the corporate literature that in addition to financial variables, ownership concentration of the largest shareholder can be one of the critical factors in the corporate governance mechanism, which can affect the likelihood of bankruptcy (Chan et al ., ).…”

Section: Introductionmentioning

confidence: 97%

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Ownership Concentration and Institutional Quality: Do They Affect Corporate Bankruptcy Risk?

Kim¹

2019

Asia-Pac J of Fin Stud

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Using the Worldwide Governance Indicators and enterprise survey data from the World Bank in 41 countries, this paper explores the relationship between ownership concentration and institutional quality and their association with corporate bankruptcy risk. The analytical results indicate an inverse relationship, suggesting that concentrated ownership is higher in countries with lower governance quality. This paper also finds that ownership concentration and institutional quality reduce bankruptcy risk and that in countries with stronger institutional quality, concentrated ownership has a weaker effect on bankruptcy risk. This implies that ownership concentration as a corporate governance mechanism can play a substituting role for weak governance quality and that such a role is more significant in countries with weaker institutional quality.

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Section: Literature Reviewmentioning

confidence: 97%

Section: Introductionmentioning

confidence: 97%

Section: Introductionmentioning

confidence: 97%

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Ownership Concentration and Institutional Quality: Do They Affect Corporate Bankruptcy Risk?

Kim¹

2019

Asia-Pac J of Fin Stud

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“…However, in the early 1990s, another strand of research that explores corporate governance variables and their roles in predicting financial distress emerged in literature (Chan, Chou, Lin, and Liu, 2016). These authors have argued that economic and financial data alone do not provide sufficient predictive power of future distress, hence, the need to consider variables representative of corporate governance characteristics (Heremans, 2007;Chen, 2008;Chang, 2009).…”

Section: Introductionmentioning

confidence: 99%

Corporate Governance and Financial Distress in the Banking Industry: Nigerian Experience

John¹,

Ogechukwu²

2018

JEBS

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The study investigates the effect of corporate governance on financial distress in the Nigerian banking industry and examines the discriminatory power of corporate governance mechanism of the board, audit committee, executive management and auditor in one model for financial distress prediction. Secondary data obtained from annual financial statements of twenty banks between 2005 and 2015 were used for the study. The data were analyzed using descriptive statistics and generalized quantile regression model. The empirical evidence from the study suggests that financially distressed banks are characterized by large board size with members who may not be well versed in banking complexities, chairmen and CEOs with significant shareholding both individually and collectively. Furthermore, the evidence also shows that distressed banks suffer major decline in customer deposits despite increase in size. The study concludes that financial distress can be caused by poor corporate governance mechanism.

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“…Chan et al (2016), & Miglani et al (2015) which used GCG as their independent variable to predict financial distress. This study combined both FR's and GCG as its variables to predict financial distress in order to obtain a more accurate result as suggested by Liang et al (2016).…”

Section: Introductionmentioning

confidence: 99%

Financial performance, corporate governance, and financial distress

Ernawati¹,

Handojo²,

Murhadi³

2018

Proceedings of the 15th International Symposium on Management (INSYMA 2018)

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ABSTRACT:This study aims to analyze the effect of financial ratios and corporate governance on financial distress by making a prediction model of bankruptcy using data from non-financial sector companies listed on the Indonesia Stock Exchange (IDX). This research used the quantitative approach with a logistic regression model. The samples used in this study were 310 companies from the non-financial sector with 1550 observations. The research findings suggested that the variables included in the model are current liabilities to total assets, total liabilities to total assets, book-to-market value, blockholder ownership, sales to total assets, earnings before interest, and taxes to total assets. While the audit opinion variable has no significant effect. Although not all the variables which have been incorporated into the model were significant, the insignificant variables still remained in the model to improve the accuracy of the prediction model. The results suggested that the accuracy of this bankruptcy prediction model was 98.1%.

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The role of corporate governance in forecasting bankruptcy: Pre- and post-SOX enactment

Cited by 20 publications

References 52 publications

Ownership Concentration and Institutional Quality: Do They Affect Corporate Bankruptcy Risk?

Ownership Concentration and Institutional Quality: Do They Affect Corporate Bankruptcy Risk?

Corporate Governance and Financial Distress in the Banking Industry: Nigerian Experience

Financial performance, corporate governance, and financial distress

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