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

Author

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  • Yassir Hussain Rana

    (School of Management, Jiangsu University, Zhenjiang, Jiangsu Province, China; Department of Economics and Business Administration, University of Education, Lahore, Pakistan)

  • Xuezhou Wen

    (School of Management, Jiangsu University, Zhenjiang, Jiangsu Province, China; School of Business, Jiangnan University, Wuxi, Jiangsu Province, China)

  • Hussain Haroon

    (Noon Business School, University of Sargodha, Sargodha, Pakistan)

  • Saad Muhammad

    (Fast School of Management, National University of Computer and Emerging Sciences, Karachi Campus, Pakistan)

  • Qalati Sikander Ali

    (School of Management, Jiangsu University, Zhenjiang, Jiangsu Province, China)

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.

Suggested Citation

  • Yassir Hussain Rana & Xuezhou Wen & Hussain Haroon & Saad Muhammad & Qalati Sikander Ali, 2021. "Corporate board vigilance and insolvency risk: a mediated moderation model of debt maturity and fixed collaterals," International Journal of Management and Economics, Warsaw School of Economics, Collegium of World Economy, vol. 57(1), pages 14-33, March.
    • Handle: RePEc:vrs:ijomae:v:57:y:2021:i:1:p:14-33:n:4
    DOI: 10.2478/ijme-2020-0032
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    Keywords

    board vigilance; insolvency risk; debt maturity; fixed collaterals;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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