|dc.description.abstract||This thesis is structured around three interrelated empirical studies that explore the effects of stock liquidity, board gender diversity and national culture on default risk in the global markets. Several important and significant factors build the investigation on firm default risk: (i) an increase in corporate insolvencies after the global financial crisis (GFC); (ii) importance of understanding the sources of default risk; (iii) large variations in information asymmetry and corporate governance systems around the world; (iv) differences in regulatory settings across emerging and developed economies; (v) a global call for gender diversity on boards of directors (e.g., corporate governance reforms and legislation of gender quotas for appointing women on corporate boards); (vi) regulators’ focus on culture; and (vii) the paucity of existing literature in explaining default risk from a global and holistic perspective.
The first empirical study emphasises the importance of stock liquidity in explaining default risk using a sample of 41,683 firm-year observations for 4,381 non-financial firms across 46 countries during the period 2004–2015. This study documents a negative effect of stock liquidity on default risk, suggesting that firms with liquid stocks significantly reduce default risk in international markets. The results are consistent with various robustness checks (e.g., a difference-in-differences approach for endogeneity concern, alternative estimation method, alternative proxies, alternative samples, cross-industry estimation, and additional controls). This study, in an additional analysis, reports the effect of liquidity on default risk to be more pronounced in countries with poorer investor protection and information environments. Further, this effect is attenuated (strengthened) for firms with greater information efficiency (blockholder ownership). This study contributes to the stream of research that explores the determinants of firm default risk by highlighting the implications of stock liquidity for default risk and shedding light on the relationship between stock liquidity and default risk in a global setting with 46 countries. The study also shows for the first time that the inverse effect of stock liquidity on default risk is more pronounced in countries with poorer investor protection and information environments. Overall, the findings highlight the importance of stock liquidity in affecting default risk in international markets with varying levels of regulatory settings. The second empirical study examines whether board gender diversity affects corporate default risk using a large sample of 39,777 firm-year observations for 6,422 non-financial firms across 54 countries during the period 2004–2016. This study documents a significantly negative relationship between board gender diversity and default risk, suggesting that firms with more gender-diverse boards significantly reduce default risk. The results hold for various robustness checks (e.g., a difference-in-differences analysis for endogeneity concern, alternative measures, alternative econometric specifications, and alternative samples). The study also finds that the effect of gender diversity on default risk is more pronounced for firms with weaker corporate governance. Additionally, this study documents a stronger (weaker) influence of board gender diversity on default risk for countries where masculine (feminine) culture is observed. This study extends the growing body of literature on board gender diversity that explores the possible links between women directors and various corporate outcomes by providing strong empirical evidence of the negative impact of board gender diversity on default risk in the global markets, and that such an effect is weaker for firms with greater governance controls. It also contributes to the stream of research that explores the determinants of firm default risk as the recent strand of literature, in explaining default risk, provides country-specific evidence. Additionally, this study expands on insights beyond the board diversity and default risk literature when national culture influences managerial decision making. This study offers useful insights into the current global debate on gender diversity and its implications for firms.
The third empirical study examines the role of national culture, as measured by the index of a country’s individualism, on firm default risk by employing a global sample of 110,957 firm-year observations for 13,608 non-financial firms in 50 countries across a 13-year sample period (2004–2016). This study finds strong evidence that firms located in countries with high individualism are more likely to have lower default risk, suggesting a negative relationship between individualism and default risk. The results hold for a variety of econometric approaches (e.g., an instrumental variable approach for endogeneity concern, alternative measures of individualism and default risk, additional cultural variables, different sample compositions, samples excluding the GFC periods, and alternative model specifications). The study also finds, in a channel analysis, that individualism has a strong negative effect on default risk by influencing a country’s information environment. Moreover, this study finds the effect of individualism on default risk to be weaker in countries where investors are better protected. This study contributes to the existing literature by showing that individualism has greater power for explaining firm default risk, implying the beneficial role in line with prior studies (Chui, Titman, & Wei, 2010; Eun, Wang, & Xiao, 2015; Shao, Kwok, & Zhang, 2013). This study also adds to the understanding of the determinants of default risk from a psychological perspective by documenting that cross-cultural psychology—specifically, individualism—is an important but omitted variable in the literature that can explain differences in firm default risk.
From the findings of these interrelated studies, this research concludes that in a global setting, stock liquidity is a major concern in mitigating default risk, particularly for countries with lower levels of investor protection and information environments. Second, to strengthen board monitoring function, the research suggests firms reconfigure their boards with women appointments. It also supports the recent calls for women representation on corporate boards worldwide, where governments increasingly expect board gender diversity policies. Lastly, the research provides insights into the importance of national culture from a psychological perspective for firms and stakeholders (e.g., investors, creditors, customers, employees, and regulators) at large. Specifically, it provides support to the regulators’ focus on culture by highlighting the beneficial role of individualism in mitigating default risk. Overall, this thesis documents the contributions of three different but interrelated empirical studies to the global concern on stock liquidity following the recent GFC, recent calls for greater board gender diversity, and to the importance of national culture for firms and investors.||en_US