Corporate Governance and Credit Risk

We examine the effect of corporate governance attributes, including ownership structure, board structure, management power, transparency of financial information, and risk characteristics of management, on firms' credit risk. After controlling for firm-specific factors, we find that firms with governance attributes contributing to better management disciplining have lower credit risk, while firms with governance attributes inducing entrenchment effect have higher credit risk. In sum, both management disciplining and entrenchment effects can explain the credit risk.