Differential Effects of Corporate Governance on the Cost of Equity and Debt Capital: An International Study

44 Pages Posted: 12 Oct 2012

Date Written: October 11, 2012

Abstract

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 and extensive disclosure practice. However, corporate governance has larger impacts on the cost of debt in countries characterized by weak legal protection, low transparency, and poor government quality. The results suggest that corporate governance appears especially important to creditors when a firm is exposed to high political risks.

Keywords: corporate governance, the cost of capital, legal institutions, transparency, government quality

JEL Classification: G12, G15, G34, G38

Suggested Citation

Zhu, Feifei, Differential Effects of Corporate Governance on the Cost of Equity and Debt Capital: An International Study (October 11, 2012). Available at SSRN: https://ssrn.com/abstract=2160150 or http://dx.doi.org/10.2139/ssrn.2160150

Feifei Zhu (Contact Author)

Radford University ( email )

801 East Main St.
Radford, VA 24142
United States

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