The impact of corporate governance and state ownership on the default probabilities of Chinese firms

This study investigates the impact of state ownership and corporate governance mechanisms on the default risk in China since the sanctioning of default of state-owned firms in 2014. We find a positive relationship between inside ownership and default risk for both state-owned and non-state-owned firms. Institutional ownership serves as a monitoring mechanism that reduces default risk, irrespective of state ownership. Non-state-owned firms with CEO duality have higher default probabilities. Larger boards and more independent boards reduce the default probabilities of state-owned firms. Pandemic effects are less severe for state-owned firms. •Higher inside ownership increases default risk.•Higher institutional ownership reduces default risk.•Larger boards and more independent boards reduce default risk for SOEs.•Effects of the COVID-19 pandemic are less severe for SOEs.