Excess Control, Corporate Governance, and Implied Cost of Equity: International Evidence

Posted: 17 May 2009

See all articles by Omrane Guedhami

Omrane Guedhami

University of South Carolina - Moore School of Business

Dev R. Mishra

University of Saskatchewan - Edwards School of Business

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Abstract

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, G30

Suggested Citation

Guedhami, Omrane and Mishra, Dev R., Excess Control, Corporate Governance, and Implied Cost of Equity: International Evidence. Financial Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1405565

Omrane Guedhami

University of South Carolina - Moore School of Business ( email )

Columbia, SC
United States

Dev R. Mishra (Contact Author)

University of Saskatchewan - Edwards School of Business ( email )

Edwards School of Business
Saskatoon, Saskatchewan S7N 5A7
Canada
306-966-8457 (Phone)
306-966-2515 (Fax)

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