Corporate board vigilance and insolvency risk: a mediated moderation model of debt maturity and fixed collaterals

Abstract

Studies indicate that a consistent rise in insolvency risk should be addressed at the strategic level. Vigilant boards can use leverage maturity structure as a tool to control insolvency risk. However, according to the information asymmetry theory, leverage acquisition is subject to the presence of fixed assets which can be used as collateral. The current study focuses on the relationship between board vigilance and insolvency risk, mediated by debt maturity and moderated by fixed collaterals in Pakistan based non-financial firms. A data set of 284 firms is constructed between the years 2013 and 2017. Hierarchical multiple regression analysis is used to test the proposed hypothesis using ordinary least squares (OLS) and panel corrected standard errors (PCSE) regression estimators. The results indicate that debt maturity mediates the relationship between board vigilance and insolvency risk. New information is generated about the fixed collaterals, and these negatively moderate the relationship between leverage maturity and emerging market z-score indicating inefficiency in the usage of fixed assets as collaterals. These results are robust to both regression techniques confirming that the non-productive fixed collaterals overshadow the positives of tangible assets in asset structure.

Firm Attributes and Government External Debt as Determinants of Corporate Short Debt Maturity in a Post-CPEC Scenario

“…Risk and asset tangibility influenced short term debt negatively, and results were significant for both samples using varied statistical approaches, a similar proposition was made by Hall (2012) who found a positive relationship between asset tangibility and long term debt. The negative association of risk proves that firms at higher risk levels try to avoid short term debt as it proves riskier currently and in the future as well Hussain et al (2021). Tangible assets are regarded as collateral in acquiring finance, and our results demonstrate that Pakistani firms do not exploit them for short term debt acquisition, as shown by the significant negative link between them.…”

Is state-owned enterprise merging private enterprise “market choice” or “space crowding” ? —Based on the motives of equity transfer of mixed-ownership enterprises

“…After private enterprises join the state-owned platform, they can make use of the capital and technology advantages of state-owned enterprises and then take advantage of their management flexibility, which can not only relieve their debt pressure and solve the risk of equity pledge but also enable private enterprises to replenish capital, expand and reproduce, and continue to operate. Therefore, state-owned enterprises have established symbiotic development relationships after merging with private enterprises [ 47 ].…”