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Corporate governance and failure risk: evidence from Estonian SME population

Virgo Süsi (School of Economics and Business Administration, University of Tartu, Tartu, Estonia)
Oliver Lukason (School of Economics and Business Administration, University of Tartu, Tartu, Estonia)

Management Research Review

ISSN: 2040-8269

Article publication date: 4 February 2019

Issue publication date: 13 June 2019




The purpose of this study is to find out how corporate governance is interconnected with failure risk in case of small- and medium-sized enterprises (SMEs).


The study is based on Estonian whole population of SMEs, in total 67,058 observations, and data are obtained from Estonian Business Register. Failure risk (FR) is portrayed with a well-known Altman et al. (2017) model, while seven variables reflecting corporate governance (CG) based on previous studies have been selected. As the method, logistic regression (LR) is applied with FR in the binary form as a dependent variable and seven CG variables as independent. The effect of firm size and age is studied with two separate LR models.


The results indicate that with the growth in manager’s age and the presence of managerial ownership, failure risk reduces. In turn, the presence of larger boards and managers having directorships in other firms leads to higher failure risk. Gender heterogeneity in the board, board tenure length and ownership concentration by means of having a majority owner are not associated with failure risk. The obtained results vary with firm size and age.


Unlike this study, research published on this topic earlier has used a much narrower definition of failure, mostly focused on large and listed companies, been sample based and information about corporate governance variables has often been obtained through questionnaires. All these limitations are relaxed in this population level study.



The authors acknowledge financial support from Estonian Ministry of Education and Research grant IUT20-49 “Structural Change as the Factor of Productivity Growth in the Case of Catching up Economies”.


Süsi, V. and Lukason, O. (2019), "Corporate governance and failure risk: evidence from Estonian SME population", Management Research Review, Vol. 42 No. 6, pp. 703-720.



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