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Financial Distress and Governance Structure

Poortstra, Joran LU and Marton, Dawid LU (2019) NEKN02 20191
Department of Economics
Abstract
Topics of financial distress and corporate governance structure have attracted many researchers before. However, no one combined the three distress models of Altman (1968), Ohlson (1980) and Zmijewski (1984) with corporate governance variables. The main goal of this paper is to answer the following question: what is the impact of corporate governance variables on financial distress for traded U.S manufacturing companies? By comparing results of three different regressions using three different financial distress models, we found different significant relationships between the distress models and the governance variables. Managerial ownership has a negative relationship to financial distress and significance at 1% level with the model using... (More)
Topics of financial distress and corporate governance structure have attracted many researchers before. However, no one combined the three distress models of Altman (1968), Ohlson (1980) and Zmijewski (1984) with corporate governance variables. The main goal of this paper is to answer the following question: what is the impact of corporate governance variables on financial distress for traded U.S manufacturing companies? By comparing results of three different regressions using three different financial distress models, we found different significant relationships between the distress models and the governance variables. Managerial ownership has a negative relationship to financial distress and significance at 1% level with the model using the Altman Z-Score. The other significant relationship to financial distress, at 5% level, was the positive relationship between the Ohlson O-score and number of committees, the latter is new in the field as it was not used in this context before. Furthermore, the compensations of both the CEO and directors are found to be positively related to financial distress in the model using the Altman Z-score, where CEO compensation was found significant at 10% level with adjusted p-values and directors’ compensation significant at the 5% level both with standard and adjusted p-values. Similarly, in the model using the Zmijewski score, the CEO compensation was found to have a positive impact on financial distress and significance at the 5% level. Overall, we find various relationships between corporate governance variables and financial distress. (Less)
Please use this url to cite or link to this publication:
author
Poortstra, Joran LU and Marton, Dawid LU
supervisor
organization
course
NEKN02 20191
year
type
H1 - Master's Degree (One Year)
subject
keywords
financial distress, corporate governance, Altman Z-score, Ohlson O-score, Zmijewski score
language
English
id
8980871
date added to LUP
2019-08-08 10:28:55
date last changed
2019-08-08 10:28:55
@misc{8980871,
  abstract     = {{Topics of financial distress and corporate governance structure have attracted many researchers before. However, no one combined the three distress models of Altman (1968), Ohlson (1980) and Zmijewski (1984) with corporate governance variables. The main goal of this paper is to answer the following question: what is the impact of corporate governance variables on financial distress for traded U.S manufacturing companies? By comparing results of three different regressions using three different financial distress models, we found different significant relationships between the distress models and the governance variables. Managerial ownership has a negative relationship to financial distress and significance at 1% level with the model using the Altman Z-Score. The other significant relationship to financial distress, at 5% level, was the positive relationship between the Ohlson O-score and number of committees, the latter is new in the field as it was not used in this context before. Furthermore, the compensations of both the CEO and directors are found to be positively related to financial distress in the model using the Altman Z-score, where CEO compensation was found significant at 10% level with adjusted p-values and directors’ compensation significant at the 5% level both with standard and adjusted p-values. Similarly, in the model using the Zmijewski score, the CEO compensation was found to have a positive impact on financial distress and significance at the 5% level. Overall, we find various relationships between corporate governance variables and financial distress.}},
  author       = {{Poortstra, Joran and Marton, Dawid}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Financial Distress and Governance Structure}},
  year         = {{2019}},
}