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
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
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