Abstract

UNIVERSITY OF PLYMOUTH UK School of Business Department of Accounting, Finance and Economics ABSTRACT Doctor of Philosophy Accounting disclosure, financial transparency, ownership structure and corporate governance: implications for internal and external WVB Jordanian credit risk assessments By Abdullah A.K. Al-Khawaaldah Bani Hasan (Ash-Shu’ayree As-Salafi) Creditworthiness is a quality that is important to all stakeholders of an organisation, especially bondholders. It is posited that good corporate governance practices assist the confidence that stakeholders have in an organization’s ability to generate the strong cash flows that are needed to meet financial obligations, which in turn should enhance credit risk assessments. Much research has been conducted into rating assessments, but these have largely been directed at developed markets and they have not generally been focused on the impact of good corporate governance practices and procedures. The primary focus of this research is to address this issue through an investigation into the impact of key factors upon the credit risk assessments of listed companies on the Amman Stock Exchange (ASE) in Jordan, as assessed by World'vest Base Inc. (WVB) credit risk assessment scores for Jordanian companies between 2005 and 2007 inclusively. Drawing upon insights from agency (including management disciplining and wealth redistribution hypotheses), stewardship, stakeholder, signalling, legitimacy and the diffusion of innovation theories, this thesis investigates the determinants of WVB credit risk assessments of Jordanian firms under five headings: accounting and financial aspects, market and regulatory perspectives, influence of ownership structure, financial transparency/disclosure and corporate governance factors. To achieve this, an array of modelling techniques is used in order to provide a more comprehensive picture. They include bivariate analysis, one-way analysis of variance, ordinary least square regressions for numerical scores, binary logistic regressions, and ordinal logistic regression. The results demonstrate that accounting and financial factors have a significant impact on credit risk assessments but not capital intensity. Profitability is positively associated with credit risk assessments, while leverage and loss propensity have a negative association. With respect to market and regulatory factors, size and Tobin’s Q are positively associated with credit risk assessments. By contrast type of sector and audit are not related to credit risk assessments. Foreign ownership enhances ratings, whilst institutional ownership has a negative impact. Also, insider ownership and family ownership have some importance. It was surprising to find that whilst financial transparency and disclosure variables are significantly associated positively with credit risk assessments in some models, they were generally not significant across other models. Nevertheless, the study finds empirical evidence to support a degree of association between credit risk assessments and corporate governance factors. There is also a positive association between board size and credit risk assessments, but the most important aspect of corporate governance for Jordanian firms is board expertise. The originality of this thesis also embraces the inclusion not only of externally published WVB risk assessments in the Jordanian context, but also internal numerical ratings that were made available with kind permission from the WVB agency for the purposes of this research. The question is whether there are insights that can be gained from such internal ratings that have not hitherto been made available to other researchers. The answer is in the affirmative, for role duality on the board of directors is evidently more important to WVB’s own internal numerical rating assessments than is evidenced by the WVB externally published credit risk assessments. Specifically, the significance of corporate governance (role duality) is missed by multivariate models that are based solely on externally published data. Furthermore, financial transparency and disclosure variables reveal more (albeit moderate) support for the more refined internal scores of WVB than for the external assessment ratings. Finally, family ownership is also important to WVB’s internal scores. Thus, this research has enabled deeper insights to be gained into credit risk assessment determinants within the Jordanian context.

Keywords

Amman Stock Exchange, Corporate governance, Financial transparency and disclosure, Credit risk assessments, Jordan

Document Type

Thesis

Publication Date

2011

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