Corporate Governance Quality and Cost of Equity

Posted: 26 Dec 2010

See all articles by Maria-Gaia Soana

Maria-Gaia Soana

University of Parma

Massimo Regalli

University of Parma - Dipartimento di Economia

Date Written: December 26, 2010

Abstract

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

Soana, Maria-Gaia and Regalli, Massimo, Corporate Governance Quality and Cost of Equity (December 26, 2010). Available at SSRN: https://ssrn.com/abstract=1731264 or http://dx.doi.org/10.2139/ssrn.1731264

Maria-Gaia Soana (Contact Author)

University of Parma ( email )

Via Kennedy 6
Parma, 43100
Italy

Massimo Regalli

University of Parma - Dipartimento di Economia ( email )

Via Kennedy 6
Parma, Parma 43100
Italy

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