Corporate governance, sustainability and the assessment of default risk

James-Overheu, Christina and Cotter, Julie (2009) Corporate governance, sustainability and the assessment of default risk. Asian Journal of Finance and Accounting, 1 (1). pp. 34-53.

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Abstract

This paper investigates whether the quality of a firm’s corporate governance practices and its sustainability disclosures are inversely related to its assessed default risk. It is expected that high reported standards of corporate governance will reduce the assessment of a company’s default risk by lenders, underwriters and ratings agencies, and therefore reduce the cost of debt for such companies. A corporate governance index based on annual report disclosures was developed to rate each company’s corporate governance quality. Derivation of this index was centred on corporate governance indicators suggested by prior research and best practice; particularly the Australian Stock Exchange “Principles of Good Corporate Governance and Best Practice Recommendations”. It is similarly expected that the voluntary disclosure of sustainability information (Corporate Social Reporting or CSR) will enhance a firm’s management reputation. The assessment of default risk is captured by a firm’s individual credit rating supplied by Standard and Poor’s. Our results indicate that neither annual report disclosures about corporate governance practices nor sustainability disclosures are significantly related to assessed default risk when firm size is controlled.


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Item Type: Article (Commonwealth Reporting Category C)
Refereed: Yes
Item Status: Live Archive
Additional Information: Deposited in accordance with the copyright policy of the publisher - this work is licensed under a Creative Commons Attribution 3.0 License. http://creativecommons.org/licenses/by/3.0/
Depositing User: Mrs Christina James-Overheu
Faculty / Department / School: Historic - Faculty of Business - School of Accounting, Economics and Finance
Date Deposited: 16 Sep 2009 02:19
Last Modified: 02 Jul 2013 23:24
Uncontrolled Keywords: corporate governance; sustainability; disclosure; default risk; credit rating
Fields of Research (FOR2008): 15 Commerce, Management, Tourism and Services > 1501 Accounting, Auditing and Accountability > 150103 Financial Accounting
15 Commerce, Management, Tourism and Services > 1502 Banking, Finance and Investment > 150205 Investment and Risk Management
15 Commerce, Management, Tourism and Services > 1501 Accounting, Auditing and Accountability > 150106 Sustainability Accounting and Reporting
Socio-Economic Objective (SEO2008): B Economic Development > 91 Economic Framework > 9104 Management and Productivity > 910402 Management
URI: http://eprints.usq.edu.au/id/eprint/5692

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