Excess Control, Corporate Governance, and Implied Cost of Equity: International Evidence
University of South Carolina - Moore School of Business
Dev R. Mishra
University of Saskatchewan - Edwards School of Business
Financial Review, Forthcoming
We investigate whether the separation between ownership and control rights can be costly to controlling shareholders and firms in terms of capital-raising costs. Using estimates of the cost of equity capital implied by analyst earnings forecasts and growth rate for a sample of 1,207 firms from nine Asian and 13 Western European countries, we find strong, robust evidence that the cost of equity is increasing in excess control, while controlling for other firm-level characteristics. This core finding persists after controlling for legal institutions variables.
Keywords: Ownership, Control, Expropriation, Corporate Governance, Cost of Equity
JEL Classification: G12, G32, G34, G38, G30Accepted Paper Series
Date posted: May 17, 2009
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