FIN921 Managerial Finance - Essay Help

Bankruptcy risk has been the most researched issue in the financial sector. It's been centuries the creditors have been concerned whether their financial aids would be ever returned to them. In recent times, various strategies have developed to assess and forecast defaults and bankruptcy risks. Even though various revealing factors have been identified and studied, bankruptcy risk is still considered as an acute issue. On the other hand, corporate governance is the only measure to be considered for accountability, compensation, ownership and control (Postnova, 2012). 

In the past literature, it can be found that effective corporate governance plays an important role in ensuring sustainable financial management, efficient resource allocation and financial reporting within an organisation (Postnova, 2012). On the other hand, organisations whose corporate governance is strong shareholder oriented often ignore the interests in their creditors. This leads the organisation to financial distress in which the organisation keeps busy in distributing dividends and ignores debt holders (leading to bankruptcy) (Lyn, Petrova and Spieler, 2014). 

The relationship between corporate governance and bankruptcy risks prominently studied across past academic literature. However, the purpose of this study is to understand the underlying factors that affect the relationship between corporate governance and bankruptcy in order to review potential measures and determinants that could help the organisation to resolve its creditworthiness. The objective of this research is to expand the existing research on the impact of corporate governance on bankruptcy risk and how effective corporate risk management can bring efficiency in organisation’s creditworthiness. 

Corporate governance is being practised as long as the corporations exist. Corporate governance is an intrinsic feature of the organisation. Various researchers have studied corporate governance and its impact on the organisation but differently (Fani et al. 2017). Henceforth, there is a wide range of definitions, characteristics and concepts of corporate governance is available on the internet. According to Mokarami and Motefares (2013), corporate governance (CG) is a set of relations between the organisation’s shareholders, auditors and managers who work to assure proper ownership and control system of the organisation. In addition, Larcker, Richardson and Tuna (2007) discussed corporate governance as the set of rules and regulations to support and run an organisation in an efficient and effective way. Most prominently, Darret et al. (2016) discussed the major contribution of corporate governance, i.e. accountability towards the organisational strategy, so that the organisational financial performance can be improved. On the other hand, Mazur and Wu (2016) discussed the role of the Board of Directors in corporate governance. In their earlier research, they reported the positive change in organisational performance after the change in organisations’ board structure. 

Several researchers also pounded on the impact of the ownership structure on corporate governance. According to Singh and Davidson (2003), ownership structure is another core dimension of corporate governance. Diversity in organisational structure often leads to diluted ownership, which ultimately results in the limited interest of the owner in organisational activities, reduced control and supervision, which may lead to the organisation’s failure. 

Implementing the principles of corporate governance can increase the efficiency of the business, protect the rights and interests of shareholders and contribute to the stability of the financial market. It is in corporate governance, although the company’s goal, including the interests of shareholders, is met, shareholder interests are fulfilled, and management measures and procedures are implemented (Bidabad, Amirostovar and Sherafati, 2017). In the research paper of Darret et al. (2014), corporate governance had been linked to operating performance. In his research study, it was evident that the organisations controlled by the female representatives are less likely to report bankruptcy. However, this result remained consistent with operating performance and gender diversification.