Abstract

This paper looks at the post financial crisis period, and the relationship between default risk and corporate governance for financial firms outside of North America. Default risk is captured through both credit default swap spreads (CDS) and the Black-Scholes-Merton Distance-to-Default measure (DD). Institutional ownership and board independence negatively relate to DD, while insider holdings, CEO duality, and board size positively relate to DD for the complete sample for firms. Not all of these relationships hold when using CDS spreads as a risk gauge. Relationships between board-related variables and risk are found to be continent-specific, which can explain some of the different risk responses to governance variables across risk measures. In particular, for Asian firms, most governance variables are significantly related to default risk. For European firms, on the other hand, only board size and institutional holdings are significant.