Corporate governance and failure risk: evidence from Estonian SME population
ISSN: 2040-8269
Article publication date: 4 February 2019
Issue publication date: 13 June 2019
Abstract
Purpose
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/approach
The 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.
Findings
The 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/value
Unlike 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.
Keywords
Acknowledgements
The authors acknowledge financial support from Estonian Ministry of Education and Research grant IUT20-49 “Structural Change as the Factor of Productivity Growth in the Case of Catching up Economies”.
Citation
Süsi, V. and Lukason, O. (2019), "Corporate governance and failure risk: evidence from Estonian SME population", Management Research Review, Vol. 42 No. 6, pp. 703-720. https://doi.org/10.1108/MRR-03-2018-0105
Publisher
:Emerald Publishing Limited
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