Lin, W. Y., Hsu, C. Y., Chi, W., and Chen, Y. L. 2009. Corporate Governance and Credit Risk. NTU Management Review, : 071-098
Wan-Ying Lin, Associate Professor, Department of Accounting, National Chengchi University
Chung-Yuan Hsu, Professor, Department of Accounting, National Chengchi University
Wuchun Chi, Professor, Department of Accounting, National Chengchi University
Yi-Ling Chen, Lecturer, Department of Accounting, Yuan Ze University
Abstract
We examine the effect of corporate governance attributes, including ownership structure, board structure, management power, transparency of financial information, and risk characteristics of management, on firms' credit risk. After controlling for firm-specific factors, we find that firms with governance attributes contributing to better management disciplining have lower credit risk, while firms with governance attributes inducing entrenchment effect have higher credit risk. In sum, both management disciplining and entrenchment effects can explain the credit risk.
Keywords
credit risk corporate governance board and ownership structure