The Relationship Between Corporate Governance Financial Distress

Download or read book The Relationship Between Corporate Governance & Financial Distress written by Tony Bou Chahine and published by . This book was released on 2013 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study analyzes the relationship between a company's likelihood of financial distress and its corporate governance. A conditional logit regression analysis of 181 European companies with interest coverage shortfalls between 2004 and 2008 and a matched group of healthy firms shows that a firm's quality of corporate governance is negatively related to its probability of financial distress. Moreover, the analysis reveals that corporate governance mechanisms with regard to a firm's audit, its compensation of directors and managers and its vulnerability to takeovers are strongly associated to a company's likelihood of financial distress. Board governance is not found to be related to financial distress. The results support agency theory since they show that implementing good governance structures reduces the likelihood of bad performance. This implies that good governance structures are in the interest of all stakeholders who are all adversely affected by a company's financial distress.