Can we predict the likelihood of financial distress in companies from their corporate governance and borrowing?
International Journal of Accounting & Information Management
ISSN: 1834-7649
Article publication date: 8 January 2021
Issue publication date: 11 May 2021
Abstract
Purpose
The purpose of this study is to investigate the impact of corporate governance structures on the likelihood of financial distress in UK listed companies. The paper examines the impact of borrowing and corporate governance structures on financial distress likelihood in UK 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, chief executive officer 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 a 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/value
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
Citation
Mariano, S.S.G., Izadi, J. and Pratt, M. (2021), "Can we predict the likelihood of financial distress in companies from their corporate governance and borrowing?", International Journal of Accounting & Information Management, Vol. 29 No. 2, pp. 305-323. https://doi.org/10.1108/IJAIM-08-2020-0130
Publisher
:Emerald Publishing Limited
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