Title

Corporate governance and the insolvency risk of financial institutions

Publication Name

North American Journal of Economics and Finance

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.

Open Access Status

This publication is not available as open access

Volume

55

Article Number

101311

Funding Sponsor

Säästöpankkien Tutkimussäätiö

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Link to publisher version (DOI)

http://dx.doi.org/10.1016/j.najef.2020.101311