Abstract

This paper investigates the influence of corporate governance structures on the credit risks of Canadian firms from the perspective of bondholders after the 2007-2008 financial crisis. Default probabilities calculated from Black-Scholes/ Merton Distance to Default type models are used to measure firms credit risks. Based on these measures, Canadian financial firms actually show higher risk than non-financial firms over the financial crisis. This may be explained by the high exposure of Canadian financial firms to US markets during the period of the crisis. However, in the transition to the post financial crisis period, the risk of financial firms decreases more rapidly than that of industrial firms. With the exception of board size and CEO duality, most governance mechanisms examine, including insider ownership, board independence, institutional ownership, financial transparency and compensation committee independence, have differential impacts on financial vs. non-financial firms. Finally, we find that Canadian firms headquartered in Quebec have higher credit risks than Canadian firms headquartered in other provinces.