Corporate governance and default prediction: a reality test |
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Authors: | Jayasuriya Mahapatabendige Ruwani Fernando Yang Hou |
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Institution: | 1. Waikato Management School, University of Waikato, Hamilton, Waikato, New Zealand;2. Department of Finance, Faculty of Commerce and Management Studies, University of Kelaniya, Dalugama, Kelaniya, Sri Lanka |
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Abstract: | Default prediction has commanded the attention of researchers for at least 50 years. This paper addresses several testable hypotheses regarding the relations between corporate governance and default prediction. We employ the conventional logistic regression to provide empirical evidence from U.S. default data over the period of 2000 to 2015. Empirical results are consistent with the following notions: First, default firms are associated with high ownership concentration, low shareholder rights, low financial transparency and disclosures, and less board effectiveness. Second, in-sample and out-of-sample tests support the incremental contribution of corporate governance information on default prediction, when compared with the models involving just financial information. |
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Keywords: | Corporate governance default prediction accounting information market information |
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