Title: Internal governance mechanism and default probability: evidence from US public firms

Authors: Samira Lehlou; Imen Tebourbi; Lobna Bouslimi

Addresses: National Bank of Canada, 700, De La Gauchetière Ouest Street, 5th floor, Montreal, QC, H3B 4L2, Canada ' Department of Finance, Dubai University, P.O. Box: 14143, Dubai, UAE ' Department of Finance, John Molson School of Business, Concordia University, 1455 de Maisonneuve Blvd. West, Montreal, QC H3G 1M8, Canada

Abstract: Using a sample of US public firms, we examine the role of different internal corporate governance mechanisms in predicting the probability of default. We build a model that integrates financial ratios and corporate governance-related variables to predict the probability of default and find that board of directors-related variables increase the power of the model to predict the default probability. Our results suggest that firms with larger boards and CEOs performing multiple functions within their corporations are associated with lower default probability. However, CEO-chairman duality and the number of internal directors increase the credit risk. Our parsimonious model also shows the importance of board of directors' characteristics for predicting the probability of default in public firms.

Keywords: default probability; corporate governance; public firms; board of directors; internal governance; USA; United States; financial ratios; modelling.

DOI: 10.1504/IJCG.2014.062351

International Journal of Corporate Governance, 2014 Vol.5 No.1/2, pp.83 - 102

Received: 13 Jan 2014
Accepted: 14 Mar 2014
Published online: 30 Apr 2015 *

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