Corporate governance and financial distress prediction

A myriad of research studies exist on the prediction of firm financial distress (e.g., Beaver, 1968; Altman et al., 1977; Altman, 1989; Hamberick and D’Aveni, 1992; Foreman, 2003 Lajili & Zegal, 2010; Bredart, 2014). Prediction of company failure is important because many other stakeholders besides the shareholders (e.g. employees, suppliers, customers, the communities and creditors) are affected when the company fails. To predict company failure, early researchers developed and used accounting and cash flow based models (e.g., Beaver, 1968; Altman et al., 1977; Ohlson, 1980). However, over the past decade researchers have argued that that models based on financial performance data alone do not provide enough predictive power for financial distress and bankruptcy (Fich and Slezak, 2008; Chang, 2009). They therefore advocate the augmentation of financial performance based models with corporate governance based variables to improve the prediction of financial distress. The results so far suggest that corporate governance variables significantly improve the predictive power of widely used bankruptcy forecast models (Laitinen and Laitinen, 2009; Lajili and Zegal, 2010; Bredart, 2014). However, the research examining the contribution of governance mechanisms in predicting financial distress prediction remains limited. Moreover, it is currently unknown whether there are differences in the financial distress prediction accuracy of the corporate governance variables before and after the financial crisis.

The aim of the research is to understand the importance of corporate governance variables in predicting financial distress. Key objectives are: (a) to investigate whether financial performance based models can predict financial distress (b) to determine whether the corporate governance variables can predict financial distress (c) to contribute to the understanding of whether a combination of financial and corporate governance variables improve the prediction of company failure before and after the financial crisis.
The research will use financial information and corporate governance variables data of FTSE 1000 companies derived from the Financial Analysis Made Easy (FAME) Database covering a ten year period from 2006 to 2015.

How to apply: Applications are made via our website using the Apply Online button below. If you have an enquiry about this project please contact us via the Email NOW button below, however your application will only be processed once you have submitted an application form as opposed to emailing your CV to us.

Candidates for funded PhD studentship must demonstrate outstanding qualities and be motivated to complete a PhD in 3 years.
All candidates must satisfy the University’s minimum doctoral entry criteria for studentships of an honours degree at Upper Second Class (2.1) and/or an appropriate Master’s degree. An IELTS (Academic) score of 6.5 minimum (or equivalent) is essential for candidates for whom English is not their first language.

In addition to satisfying basic entry criteria, BU will look closely at the qualities, skills and background of each candidate and what they can bring to their chosen research project in order to ensure successful and timely completion.

Preference will be given to applicants with research publications. Annual continuation of awards will depend on satisfactory performance.