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Corporate Governance and the Cost of Capital: An International Study
Author(s) -
Zhu Feifei
Publication year - 2014
Publication title -
international review of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.489
H-Index - 18
eISSN - 1468-2443
pISSN - 1369-412X
DOI - 10.1111/irfi.12034
Subject(s) - corporate governance , cost of equity , cost of capital , equity (law) , business , shareholder , creditor , transparency (behavior) , accounting , weighted average cost of capital , government (linguistics) , stakeholder , debt , finance , economics , financial capital , capital formation , market economy , linguistics , philosophy , management , political science , law , incentive , human capital
This study shows that firms with good corporate governance are consistently associated with both lower cost of equity and cost of debt capital in an international setting. The association between corporate governance and the cost of equity is more pronounced in countries with strong legal systems, extensive disclosure practices, and good government quality. However, the relation between corporate governance and the cost of debt is stronger in countries characterized by weak legal protection, low transparency, and poor government quality. The differential relations can be attributed to asymmetric payoffs received by creditors and shareholders.