University of Oulu

Kallunki, JP., Pyykkö, E. Do defaulting CEOs and directors increase the likelihood of financial distress of the firm?. Rev Account Stud 18, 228–260 (2013).

Do defaulting CEOs and directors increasethe likelihood of financial distress of the firm?

Saved in:
Author: Kallunki, Juha-Pekka1; Pyykkö, Elina2
Organizations: 1Department of Accounting, University of Oulu, P.O. Box 4600, 90014, Oulu, Finland
2European Credit Research Institute at the Centre for European Policy Studies, Place du Congres 1, 1000, Brussels, Belgium
Format: article
Version: accepted version
Access: open
Online Access: PDF Full Text (PDF, 0.6 MB)
Persistent link:
Language: English
Published: Springer Nature, 2013
Publish Date: 2021-08-26


We hypothesize that the information on a CEO’s and directors’ (board members) past personal payment default entries in public credit data files significantly increases the predictive power of Altman’s (in J Fin 23(4):589–609, 1968) and Ohlson’s (In J Acc Res 18(1):109–131, 1980) distress prediction models. We base our hypothesis on the literature showing that (1) managerial traits such as overconfidence, over-optimism, and the illusion of control affect corporate decisions and that (2) these same personal traits explain personal over-indebtedness and credit defaults. Our results of analyzing the credit data files of more than 100,000 CEOs and directors of the Finnish private limited liability companies support this hypothesis. Our results remain materially unchanged when using the bootstrapping method to assess their significance and when excluding small firms (firm size below the sample median). Collectively, our results imply that creditors should recognize the increased distress risk of firms appointing defaulting CEOs and directors.

see all

Series: Review of accounting studies
ISSN: 1380-6653
ISSN-E: 1573-7136
ISSN-L: 1380-6653
Volume: 18
Pages: 228 - 260
DOI: 10.1007/s11142-012-9203-x
Type of Publication: A1 Journal article – refereed
Field of Science: 512 Business and management
Copyright information: © Springer Science+Business Media, LLC 2012. This is a post-peer-review, pre-copyedit version of an article published in Rev Account Stud. The final authenticated version is available online at