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Corporate governance and failure risk: evidence from Estonian SME population

Corporate governance and failure risk: evidence from Estonian SME population The purpose of this study is to find out how corporate governance is interconnected with failure risk in case of small- and medium-sized enterprises (SMEs).Design/methodology/approachThe study is based on Estonian whole population of SMEs, in total 67,058 observations, and data are obtained from Estonian Business Register. Failure risk (FR) is portrayed with a well-known Altman et al. (2017) model, while seven variables reflecting corporate governance (CG) based on previous studies have been selected. As the method, logistic regression (LR) is applied with FR in the binary form as a dependent variable and seven CG variables as independent. The effect of firm size and age is studied with two separate LR models.FindingsThe results indicate that with the growth in manager’s age and the presence of managerial ownership, failure risk reduces. In turn, the presence of larger boards and managers having directorships in other firms leads to higher failure risk. Gender heterogeneity in the board, board tenure length and ownership concentration by means of having a majority owner are not associated with failure risk. The obtained results vary with firm size and age.Originality/valueUnlike this study, research published on this topic earlier has used a much narrower definition of failure, mostly focused on large and listed companies, been sample based and information about corporate governance variables has often been obtained through questionnaires. All these limitations are relaxed in this population level study. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Management Research Review Emerald Publishing

Corporate governance and failure risk: evidence from Estonian SME population

Management Research Review , Volume 42 (6): 18 – Jun 13, 2019

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References (79)

Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
2040-8269
DOI
10.1108/mrr-03-2018-0105
Publisher site
See Article on Publisher Site

Abstract

The purpose of this study is to find out how corporate governance is interconnected with failure risk in case of small- and medium-sized enterprises (SMEs).Design/methodology/approachThe study is based on Estonian whole population of SMEs, in total 67,058 observations, and data are obtained from Estonian Business Register. Failure risk (FR) is portrayed with a well-known Altman et al. (2017) model, while seven variables reflecting corporate governance (CG) based on previous studies have been selected. As the method, logistic regression (LR) is applied with FR in the binary form as a dependent variable and seven CG variables as independent. The effect of firm size and age is studied with two separate LR models.FindingsThe results indicate that with the growth in manager’s age and the presence of managerial ownership, failure risk reduces. In turn, the presence of larger boards and managers having directorships in other firms leads to higher failure risk. Gender heterogeneity in the board, board tenure length and ownership concentration by means of having a majority owner are not associated with failure risk. The obtained results vary with firm size and age.Originality/valueUnlike this study, research published on this topic earlier has used a much narrower definition of failure, mostly focused on large and listed companies, been sample based and information about corporate governance variables has often been obtained through questionnaires. All these limitations are relaxed in this population level study.

Journal

Management Research ReviewEmerald Publishing

Published: Jun 13, 2019

Keywords: SMEs; Estonia; Corporate governance; Entrepreneurship and small business management; Private firms; Failure risk

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