Corporate Governance Quality and Cost of Equity
Posted: 26 Dec 2010
Date Written: December 26, 2010
A number of authors demonstrate how good corporate governance can have a positive effect on the economic-financial performance of companies. On the contrary, mismanagement has often been blamed for fraud and corporate insolvency. This paper attempts to verify the extent to which the market, and investors in particular, believe in this connection, i.e., in the importance of governance on corporate results. If the results, good or bad, are also a consequence of the model of governance applied, it is clear that this could be one of the elements that influence their choices and investment decisions.
This contribution investigates the relationship between the quality of governance and the cost of equity. The underlying premise is that if investors think the quality of governance has a positive effect on business results and/or the possibilities of fraud and corporate risk, they will tend to offer financial resources at a cost coherent with that profile.
Keywords: Corporate Governance, Governance Index, GIM Index, Cost of Equity
JEL Classification: G32, G34
Suggested Citation: Suggested Citation