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Do leverage decisions mediate the relationship between board structure and insolvency risk? A comparative mediating role of capital structure and debt maturity

Do leverage decisions mediate the relationship between board structure and insolvency risk? A... Corporate boards monitor managerial decisions as concluded by the monitoring hypothesis. In this scenario, the present study stresses that leverage decisions can be used as a tool to control insolvency risk.Design/methodology/approachThis study aims at investigating the intervention of capital structure and debt maturity on the relationship between corporate board composition and insolvency risk by employing Preacher and Hayes’s (2008) approach. The study sample comprises 284 firms from 2013 to 2017. Structural equation modeling is used to study the direct and indirect relationships among study variables.FindingsResults show that debt maturity is a significant mediator between CEO duality and insolvency risk and between board size and insolvency risk relationships. However, the capital structure did not mediate any of the proposed links.Research limitations/implicationsThis study suggests using more long-term debt to tackle insolvency risk in listed non-financial firms of Pakistan. It is also inferred that decisions regarding debt maturity are more crucial than capital structure decisions because insolvency risk is concerned.Originality/valueThis study evaluates the comparative mediating role of the debt maturity and the capital structure. Such role is uncommon in the literature addressing the relationship between governance variables and insolvency risk. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png South Asian Journal of Business Studies Emerald Publishing

Do leverage decisions mediate the relationship between board structure and insolvency risk? A comparative mediating role of capital structure and debt maturity

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Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
2398-628X
DOI
10.1108/sajbs-05-2020-0150
Publisher site
See Article on Publisher Site

Abstract

Corporate boards monitor managerial decisions as concluded by the monitoring hypothesis. In this scenario, the present study stresses that leverage decisions can be used as a tool to control insolvency risk.Design/methodology/approachThis study aims at investigating the intervention of capital structure and debt maturity on the relationship between corporate board composition and insolvency risk by employing Preacher and Hayes’s (2008) approach. The study sample comprises 284 firms from 2013 to 2017. Structural equation modeling is used to study the direct and indirect relationships among study variables.FindingsResults show that debt maturity is a significant mediator between CEO duality and insolvency risk and between board size and insolvency risk relationships. However, the capital structure did not mediate any of the proposed links.Research limitations/implicationsThis study suggests using more long-term debt to tackle insolvency risk in listed non-financial firms of Pakistan. It is also inferred that decisions regarding debt maturity are more crucial than capital structure decisions because insolvency risk is concerned.Originality/valueThis study evaluates the comparative mediating role of the debt maturity and the capital structure. Such role is uncommon in the literature addressing the relationship between governance variables and insolvency risk.

Journal

South Asian Journal of Business StudiesEmerald Publishing

Published: Feb 16, 2022

Keywords: Board structure; Insolvency risk; Debt maturity; Capital structure; Mediation

References