Corporate board and default risk of financial firms

Figures & data

Table 1. Variable definitions.

Variable	Definition
Dependent variable
DD	Distance to Default: Merton’s distance to default (Eq. 1(1) $$DD\left(t\right)=\frac{\ln \left(\frac{V_A}{D}\right)+\left(r-0.5{\sigma }_A^2\right)\mathrm{*}T}{{\sigma }_A\sqrt{T}}$$(1) )
Board variables
BI	Independence: number of independent directors as a percentage of total directors on the board
GD	Gender diversity: number of women directors as a percentage of total directors on the board
BS	Board size: number of directors on the board
D	Duality: dummy variable taking the value 1 if the chairperson of the board is the CEO and 0 otherwise
Control variables: Firms
FS	Firm size: market capitalisation
ROA	EBITDA divided by total assets
LEV	Leveraged: total debt to total assets
Control variables: Country
GDP	Variation in per capita gross domestic product
EURO	Dummy variable coded 1 if the companies headquartered belongs to the euro area, 0 otherwise
PIIGS	Dummy variable coded 1 if the companies headquartered in Portugal, Ireland, Italy, Greece or Spain, 0 otherwise
Control variables: Time
CRISIS	Dummy variable coded 1 if year is 2008 (subprime crisis in the USA) or 2011 (EU sovereign crisis), 0 otherwise
SSM	Dummy variable coded 1 if year is later than 2014, (year of the implementation of the 2013/36/EU directive), 0 otherwise.
SSM_EURO	Dummy variable (SSM*EURO) until October 2020 only euro area countries were involved in SMS.

Source: Authors.

Figure 1. Time profile of distance to default (DD) and probability of default (PD).

Source: Authors

Figure 2. Time profile of corporate board variables.

Source: Authors

Table 2. Descriptive statistics of board variables by country.

	DD	BS	GD	BI	D		DD	BS	GD	BI	D
Country: Austria − 30 Obs./3 Banks - Euro - No piigs						Country: Ireland R. − 46 Obs./5 Banks - Euro - Piigs
Mean	4.01	14.67	0.21	0.78	0	Mean	4.08	11.15	0.13	0.66	0.17
Std. Dev.	1.69	4.36	0.13	0.24	0	Std. Dev.	3.08	3.20	0.09	0.13	0.38
Min	1.20	6.00	0	0	0	Min	0.16	2.00	0	0	0
Max	7.02	19.00	0.37	1	0	Max	14.71	18.00	0.36	0.85	1
Country: Belgium − 43 Obs./3 Banks - Euro - No piigs						Country: Italy − 148 Obs./20 Banks - Euro - Piigs
Mean	5.60	16.09	0.19	0.30	0.07	Mean	3.83	16.72	0.21	0.57	0.16
Std. Dev.	4.76	5.18	0.14	0.14	0.26	Std. Dev.	2.74	5.84	0.15	0.27	0.37
Min	0.13	9.00	0	0.11	0	Min	0.35	3.00	0	0	0
Max	19.64	26.00	0.45	0.88	1	Max	23.54	30.00	0.54	1	1
Country: Cyprus − 4 Obs./2 Banks - Euro - No piigs						Country: Netherlands − 35 Obs./6 Banks - Euro - No piigs
Mean	6.01	9.5	0.27	0.64	0	Mean	4.78	9.31	0.22	0.84	0.03
Std. Dev.	3.13	3.11	0.09	0.21	0	Std. Dev.	3.42	2.4	0.1	0.27	0.17
Min	2.92	5.00	0.20	0.33	0	Min	0.79	4.00	0.07	0	0
Max	9.17	12.00	0.36	0.77	0	Max	20.19	14.00	0.43	1	1
Country: Czech R. − 15 Obs./2 Banks - No euro - No piigs						Country: Poland − 87 Obs./10 Banks - No euro - No piigs
Mean	12.74	13.73	0.13	0.12	0	Mean	7.91	9.02	0.15	0.34	0
Std. Dev.	6.67	4.7	0.08	0.07	0	Std. Dev.	5.28	2.58	0.13	0.20	0
Min	3.76	6.00	0	0	0	Min	0.72	5.00	0	0	0
Max	27.50	20.00	0.31	0.23	0	Max	35.96	14.00	0.6	0.73	0
Country: Denmark − 39 Obs./5 Banks - No euro - No piigs						Country: Portugal − 29 Obs./2 Banks - Euro - Piigs
Mean	5.21	11.38	0.27	0.55	0	Mean	4.14	20.1	0.07	0.33	0.1
Std. Dev.	2.19	2.12	0.10	0.15	0	Std. Dev.	2.23	4.25	0.06	0.22	0.31
Min	1.73	9.00	0.09	0	0	Min	1.49	11.00	0	0	0
Max	12.36	17.00	0.50	0.71	0	Max	8.98	29.00	0.22	1	1
Country: Finland − 21 Obs./3 Banks - Euro - No piigs						Country: Romania − 6 Obs./2 Banks - No euro - No piigs
Mean	4.77	11.33	0.32	0.43	0.14	Mean	10.71	7.83	0.13	0.49	0
Std. Dev.	1.18	6.56	0.12	0.24	0.36	Std. Dev.	2.87	0.98	0.07	0.25	0
Min	2.70	5.00	0.17	0	0	Min	8.00	7.00	0	0.22	0
Max	6.90	29.00	0.57	1	1	Max	14.75	9.00	0.22	0.71	0
Country: France − 77 Obs./6 Banks - Euro - No piigs						Country: Spain − 95 Obs./9 Banks - Euro - Piigs
Mean	4.49	16.1	0.26	0.47	0.31	Mean	4.74	14.71	0.16	0.53	0.33
Std. Dev.	2.56	3.10	0.16	0.22	0.47	Std. Dev.	2.61	2.98	0.10	0.17	0.47
Min	0.94	10.00	0	0.12	0	Min	0.55	8.00	0	0.20	0
Max	12.37	24.00	0.54	1	1	Max	14.85	22.00	0.43	0.87	1
Country: Germany − 50 Obs./5 Banks - Euro - No piigs						Country: Sweden − 50 Obs./7 Banks - No euro - No piigs
Mean	4.24	15	0.22	0.39	0.18	Mean	4.70	11.20	0.39	0.67	0.18
Std. Dev.	3.20	6.12	0.14	0.24	0.39	Std. Dev.	2.19	2.36	0.13	0.12	0.39
Min	0.81	6.00	0	0	0	Min	0.97	5.00	0	0.50	0
Max	15.72	22.00	0.42	0.86	1	Max	13.41	15.00	0.63	0.90	1
Country: Greece − 66 Obs./5 Banks - Euro - Piigs						Country: U.K. − 121 Obs./13 Banks - No euro - No piigs
Mean	3.43	16.29	0.09	0.32	0.48	Mean	5.09	13.23	0.18	0.63	0.14
Std. Dev.	2.69	4.28	0.07	0.17	0.50	Std. Dev.	2.66	3.46	0.12	0.13	0.35
Min	0.13	10.00	0	0	0	Min	0.14	4.00	0	0.33	0
Max	12.58	32.00	0.33	0.68	1	Max	14.95	21.00	0.46	1	1
Country: Hungary − 12 Obs./1 Banks - No euro - No piigs
Mean	6.42	17.00	0.03	0.22	0.92
Std. Dev.	4.29	1.21	0.04	0.07	0.29
Min	1.31	15.00	0	0.11	0
Max	13.05	19.00	0.12	0.39	1

Source: Authors.

Table 3. Descriptive statistics and matrix correlations of final sample.

Mean	4.96	13.98	0.20	0.51	0.18	1.65E + 10	0.01	3.08	0.02	0.66	0.39	0.11	0.29
Std. Dev.	3.54	4.95	0.14	0.25	0.38	2.40E + 10	0.02	3.49	0.05	0.47	0.49	0.31	0.45
Min	0.13	2.00	0.00	0.00	0.00	9.57E + 05	−0.39	0.00	−0.14	0.00	0.00	0.00	0.00
Max	35.96	32.00	0.63	1.00	1.00	1.73E + 11	0.30	37.25	0.33	1.00	1.00	1.00	1.00
Obs	974	974	974	974	974	974	974	968	974	974	974	974	974
	DD	BS	GD	BI	D	FS	ROA	LEV	GDP	EURO	PIIGS	CRISIS	SMS_EURO
DD	1.00
BS	−0.21	1.00
GD	−0.01	−0.11	1.00
BI	−0.11	−0.07	0.26	1.00
D	−0.03	0.17	−0.15	−0.11	1.00
FS	0.05	0.17	0.10	0.26	0.13	1.00
ROA	0.38	−0.11	0.03	−0.03	−0.01	−0.04	1.00
LEV	−0.24	0.01	0.11	0.14	0.02	0.03	−0.10	1.00
GDP	0.28	−0.14	−0.01	−0.03	−0.06	0.00	0.08	−0.07	1.00
EURO	−0.26	0.33	−0.05	0.01	0.12	−0.11	−0.07	0.07	−0.06	1.00
PIIGS	−0.21	0.29	−0.20	0.01	0.15	−0.15	−0.09	−0.02	−0.07	0.58	1.00
CRISIS	−0.21	0.06	−0.18	−0.02	0.06	−0.08	−0.05	0.01	−0.08	0.02	0.01	1.00
SSM_EURO	−0.08	0.02	0.41	0.08	−0.16	−0.09	0.05	−0.04	0.06	0.46	0.27	−0.22	1.00

Source: Authors.

Table 4. The corporate board and distance to default relation.

	OLS	OLS (lag)	FE	FE (lag)	two-step diff GMM	two-step sys GMM
lag_DD		0.514***		0.349***	0.382***	0.428***
		(0.00)		(0.00)	(0.000)	(0.000)
log_BS	−0.911***	−0.413*	−0.286	−1.036**	−2.175*	−2.723**
	(0.002)	(0.056)	(0.531)	(0.032)	(0.057)	(0.034)
GD	−0.204	0.482	−0.28	0.922	−0.92	−1.545
	(0.799)	(0.500)	(0.850)	(0.392)	(0.681)	(0.515)
BI	−1.45***	−0.904***	−0.605	−0.215	2.805	2.037
	(0.000)	(0.003)	(0.258)	(0.640)	(0.129)	(0.167)
D	0.036	−0.01	0.295	0.203	0.072	0.274
	(0.862)	(0.955)	(0.344)	(0.444)	(0.916)	(0.653)
GPD	15.629***	8.595***	13.767***	9.949***	10.579***	11.063***
	(0.000)	(0.000)	(0.000)	(0.000)	(0.002)	(0.000)
LEV	−0.168***	−0.096***	−0.032	−0.017	−0.075	−0.146
	(0.000)	(0.000)	(0.393)	(0.517)	(0.703)	(0.558)
ROA	49.867***	26.187***	30.581***	22.032***	11.907***	16.295***
	(0.001)	(0.010)	(0.000)	(0.000)	(0.005)	(0.000)
log_FS	0.251***	0.127***	0.923***	0.654***	1.062	1.16***
	(0.000)	(0.009)	(0.005)	(0.008)	(0.382)	(0.006)
CRISIS	−2.04***	−2.031***	−1.638***	−1.53***	−1.119*	−1.189***
	(0.000)	(0.000)	(0.000)	(0.000)	(0.095)	(0.000)
SSM_EURO	−0.5**	−0.297	−0.374	−0.259	−0.118	−0.114
	(0.030)	(0.127)	(0.381)	(0.377)	(0.668)	(0.776)
EURO	−0.936***	−0.509**	omitted	omitted	omitted	−0.682
	(0.001)	(0.029)				(0.230)
PIIGS	−0.275	−0.124	omitted	omitted	omitted	0.821
	(0.241)	(0.500)				(0.245)
Intercept	3.309**	1.486	−15.002**	−9.218	omitted	−17.159
	(0.022)	(0.189)	(0.050)	(0.107)		(0.113)
N	974	842	974	842	718	842
GRUPOS			109	103	85	103
robust	si	si	si	si	si	si
R^2	0.338	0.554
within			0.254	0.38
between			0.133	0.497
overall			0.158	0.443
Instruments					20	28
AR(1)					0.011	0.012
AR(2)					0.855	0.893
Hansen					0.515	0.548

The table shows the results obtained and (p-value) for different methods of estimation of our main equation (3)(3) $$DD=f(\mathit{Board}\mathrm{}\mathit{characteristics},\mathrm{}\mathit{Control}\mathrm{}\mathit{variables})$$(3) . The dependent variable, DD, is the distance to default as estimated by the Merton (1974) model. See Table 1 for a complete description of the explanatory variables. The first and second model use OLS estimation, the third and fourth employ a fixed-effects regression and the last two employ two step difference-GMM and two step system-GMM respectively. The R2 for the fixed-effects panel model includes the overall, within groups and between groups, AR(1) and AR(2) are the tests used to check for the existence of first and second order serial correlation. As with GMM, first-order correlation is found to exist, but not second-order correlation. The number of instruments never exceeds the number of groups and Hansen’s test indicates that the over-identification restrictions are valid. All models with robust standard errors. *, ** and *** indicate statistical significance at the 10%, 5% and 1% levels, respectively.

Source; Authors.

Merton, R. C. (1974). On the pricing of corporate debt: The risk structure of interest rates. The Journal of Finance, 29(2), 449–470.

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