Political connections, the cost of debt and board attributes: evidence from Malaysia

2019 ◽  
Vol 45 (7) ◽  
pp. 842-855 ◽  
Author(s):  
Chwee Ming Tee
Keyword(s):  
Audit Committee ◽  
Ethnically Diverse ◽  
Ordinary Least Squares ◽  
Moderating Effect ◽  
Cost Of Debt ◽  
Board Diversity ◽  
Content Type ◽  
Crony Capitalism ◽  
The Cost ◽  
The Impact

Purpose The purpose of this paper is to examine whether the relationship between politically connected firms (PCFs) and the cost of debt is moderated by board attributes such as audit committee independence, ethnic board diversity, gender board diversity and family controlling ownership. Design/methodology/approach This study employs ordinary least squares model to examine the moderating effect of audit committee independence on the association between PCFs and the cost of debt; moderating effect of ethnic board diversity on the association between PCFs and the cost of debt; moderating effect of gender board diversity on the association between PCFs and the cost of debt; and moderating effect of family-controlled boards on the association between PCFs and the cost of debt. Findings The results show that PCFs are associated with lower cost of debt, consistent with crony capitalism theory. Furthermore, board attributes are shown to have significant moderating effect on the association between PCFs and the cost of debt. Specifically, the cost of debt in PCFs can be further reduced, provided the boards have higher audit committee independence, are ethnically diverse, have higher proportion of female directors in the board and audit committee and are controlled by family shareholders. Originality/value This study reveals evidence on the impact of board attributes on the cost of debt in PCFs. All findings suggest that concerns on PCFs’ severe agency problems can be alleviated through effective monitoring. The significant board attributes that facilitate effective monitoring are audit committee independence, ethnic board diversity, gender board diversity and family ownership.

Audit committee characteristics and the moderating effect of Malaysian code of corporate governance on IPO liquidity

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Amal Mohammed Al-Masawa ◽  
Rasidah Mohd-Rashid ◽  
Hamdan Amer Al-Jaifi ◽  
Shaker Dahan Al-Duais
Keyword(s):  
Corporate Governance ◽  
Initial Public Offerings ◽  
Audit Committee ◽  
Ordinary Least Squares ◽  
Moderating Effect ◽  
Least Squares Regression ◽  
Content Type ◽  
Code Of Corporate Governance ◽  
The Impact ◽  
The Relationship

Purpose This study aims to investigate the link between audit committee characteristics and the liquidity of initial public offerings (IPOs) in Malaysia, which is an emerging economy in Southeast Asia. Another purpose of this study is to examine the moderating effect of the revised Malaysian code of corporate governance (MCCG) on the link between audit committee characteristics and IPO liquidity. Design/methodology/approach The final sample consists of 304 Malaysian IPOs listed in 2002–2017. This study uses ordinary least squares regression method to analyse the data. To confirm this study’s findings, a hierarchical or four-stage regression analysis is used to compare the t-values of the main and moderate regression models. Findings The findings show that audit committee characteristics (size and director independence) have a positive and significant relationship with IPO liquidity. Also, the revised MCCG positively moderates the relationship between audit committee characteristics and IPO liquidity. Research limitations/implications This study’s findings indicate that companies with higher audit committee independence have a more effective monitoring mechanism that mitigates information asymmetry, thus reducing adverse selection issues during share trading. Practical implications Policymakers could use the results of this study in developing policies for IPO liquidity improvements. Additionally, the findings are useful for traders and investors in their investment decision-making. For companies, the findings highlight the crucial role of the audit committee as part of the control system that monitors corporate governance. Originality/value To the authors’ knowledge, this work is a pioneering study in the context of a developing country, specifically Malaysia that investigates the impact of audit committee characteristics on IPO liquidity. Previously, the link between corporate governance and IPO liquidity had not been investigated in Malaysia. This study also contributes to the IPO literature by providing empirical evidence regarding the moderating effect of the revised MCCG on the relationship between audit committee characteristics and IPO liquidity.

The impact of government ownership on the cost of debt and valuation of Vietnamese listed companies

2020 ◽  
Vol 32 (2) ◽  
pp. 255-270
Author(s):  
Ben Le
Keyword(s):  
Instrumental Variable ◽  
Ordinary Least Squares ◽  
Firm Valuation ◽  
The Other ◽  
Cost Of Debt ◽  
Government Ownership ◽  
Content Type ◽  
The Cost ◽  
The Impact ◽  
The Relationship

Purpose This paper aims to examine the impact of government ownership on the cost of debt and firm valuation in listed Vietnamese companies for the period 2007 to 2016. Design/methodology/approach The authors use both the generalised methods of the moment (GMM) and the ordinary least squares (OLS) regressions to analyse a panel data spanning over the period 2007 to 2016 in the markets of Vietnam. Further, the instrumental variable is used in the paper. Findings The authors find that firms with relative higher government stockholdings or state-owned companies where the government owns 50 per cent or more of shares outstanding enjoy a lower cost of debt compared to the other firms. Consequently, these firms have higher firm valuation and profitability. The results are robust for both the GMM and the OLS regressions. Further, firms that no longer retain government ownership have a higher cost of debt than the other firms. The results of the paper imply the importance of political connections in businesses in the market of Vietnam. Originality/value This paper connects the relationship between government ownership and the cost of debt with the relationship between government ownership and firm valuation. The paper tests the relationship between the cost of debt and government ownership using both OLS and GMM specifications and the results are robust for both approaches. The manuscript uses an instrumental variable to show that government ownership has a positive impact on higher firm performance through reducing cost of debt. Further, this paper addresses the possible issue of endogeneity.

scholarly journals Trustee board diversity, governance mechanisms, capital structure and performance in UK charities

2018 ◽  
Vol 18 (3) ◽  
pp. 478-508 ◽  
Author(s):  
Mohamed H. Elmagrhi ◽  
Collins G. Ntim ◽  
John Malagila ◽  
Samuel Fosu ◽  
Abongeh A. Tunyi
Keyword(s):  
Capital Structure ◽  
Least Squares ◽  
Fixed Effects ◽  
Ordinary Least Squares ◽  
Moderating Effect ◽  
Board Diversity ◽  
Content Type ◽  
The Impact ◽  
New Evidence ◽  
The Relationship

PurposeThis paper aims to investigate the association among trustee board diversity (TBD), corporate governance (CG), capital structure (CS) and financial performance (FP) by using a sample of UK charities. Specifically, the authors investigate the effect of TBD on CS and ascertain whether CG quality moderates the TBD–CS nexus. Additionally, the authors examine the impact of CS on FP and ascertain whether the CS–FP nexus is moderated by TBD and CG quality.Design/methodology/approachThe authors use a number of multivariate regression techniques, including ordinary least squares, fixed-effects, lagged-effects and two-stage least squares, to rigorously analyse the data and test the hypotheses.FindingsFirst, the authors find that trustee board gender diversity has a negative effect on CS, but this relationship holds only up to the point of having three women trustees. The authors find similar, but relatively weak, results for the presence of black, Asian and minority ethnic (BAME) trustees. Second, the authors find that the TBD–CS nexus depends on the quality of CG, with the relationship being stronger in charities with higher frequency of meetings, independent CG committee and larger trustee and audit firm size. Third, the authors find that CS structure has a positive effect on FP, but this is moderated by TBD and CG quality. The evidence is robust to different econometric models that adjust for alternative measures and endogeneities. The authors interpret the findings within explanations of a theoretical perspective that captures insights from different CG and CS theories.Originality/valueExisting studies that explore TBD, CG, CS and FP in charities are rare. This study distinctively attempts to address this empirical lacuna within the extant literature by providing four new insights with specific focus on UK charities. First, the authors provide new evidence on the relationship between TBD and CS. Second, the authors offer new evidence on the moderating effect of CG on the TBD-CS nexus. Third, the authors provide new evidence on the effect of CS on FP. Finally, the authors offer new evidence on the moderating effect of TBD and CG on the CS–FP nexus.

Does opening high-speed railways affect the cost of debt financing? A quasi-natural experiment

2020 ◽  
Vol 10 (4) ◽  
pp. 473-496
Author(s):  
Hongling Guo ◽  
Keping Wu
Keyword(s):  
High Speed ◽  
Geographical Location ◽  
Debt Financing ◽  
Cost Of Debt ◽  
High Speed Railway ◽  
Content Type ◽  
Financing Cost ◽  
Debt Market ◽  
The Cost ◽  
The Impact

PurposeThis study aims to investigate how opening high-speed railways affects the cost of debt financing based on China's background.Design/methodology/approachUsing panel data on Chinese listed firms from 2008 to 2017, this study constructs a quasi-natural experiment and adopts a difference-in-difference model with multiple time periods to empirically examine the relation between the high-speed railway openings and debt financing cost.FindingsOur results show that opening high-speed railways reduces the cost of debt financing, and this negative correlation is more significant in non-state firms, firms with weaker internal control, and firms that hire non-Big Four auditors. Besides, we explore the impact mechanisms and find that opening high-speed railways improves analyst attention, institutional investor participation, and information disclosure quality, which in turn lowers the cost of debt financing.Research limitations/implicationsThe results imply that the opening of high-speed railways helps to alleviate the information asymmetry and adverse selection between firms and creditors and ultimately reduces the cost of corporate debt financing.Practical implicationsThis paper can inform firms and stakeholders about the impact of opening high-speed railways on debt financing cost: it improves the information environment, reduces the geographical location restrictions of debt financing, ensures the reasonable pricing of corporate debt, and thus promotes the healthy and sound development of the debt market.Originality/valueThis paper provides theoretical support and empirical evidence for the impact of infrastructure construction on the information environment of the debt market in China, which enriches the research on the “high-speed railway economy.” In addition, as an exogenous event, the opening of high-speed railways instantly shortens the time distance between firms and external stakeholders, which gives us a natural environment to conduct empirical research, thus providing a new perspective for financial research on firms' geographical location.

The double-edge resource-based view of logistics performance and governance in Asian countries

2018 ◽  
Vol 30 (3) ◽  
pp. 652-668 ◽  
Author(s):  
Bee Hui Koh ◽  
Wai Peng Wong ◽  
Chor Foon Tang ◽  
Ming K. Lim
Keyword(s):  
Ordinary Least Squares ◽  
Moderating Effect ◽  
Dark Side ◽  
Series Data ◽  
Asian Countries ◽  
Trade Facilitation ◽  
Content Type ◽  
Effect Model ◽  
The Impact ◽  
The Relationship

PurposeAsia has been transformed into a well-regulated dynamic platform for trade and is today world’s fastest-developing economic region. However, the increasing cross-border economic activities create new opportunities for corruption. The purpose of this paper is to assess the impact of corruption on trade facilitation using logistics performance index (LPI). This paper also examines the moderating effect of governance or government effectiveness (GE) on the relationship between corruption and LPI within Asian countries.Design/methodology/approachA panel of time-series data from year 2007 to 2014 of 26 Asian countries was collected for analysis. Static linear panel models which comprised of pooled ordinary least squares, fixed-effect model and random-effect model were utilised to analyse the panel data.FindingsThe findings show that corruption significantly affects LPI and each of the six dimensions in LPI. The results also show that governance or GE has a moderating effect on the relationship between corruption and LPI.Practical implicationsThis study benefits Asian governments to gain a better understanding on influences of corruption on trade facilitation and triggering suggestions of a government role in the relationship. Practically, the results could be used as a guideline in improving national LPI. Besides, the findings could be used to support policy decision to modify corruption regulations at the national and regional levels.Originality/valueThis study reveals that the optimistic view of sands in the wheel overcomes the dark side of the grease in the wheel practices. To be corrupt free or less corrupt is a rare and inimitable resource capability that makes nations logistically competitive.

Female directors and the cost of debt: does gender diversity in the boardroom matter to lenders?

2019 ◽  
Vol 34 (4) ◽  
pp. 374-392 ◽  
Author(s):  
Muhammad Usman ◽  
Muhammad Umar Farooq ◽  
Junrui Zhang ◽  
Muhammad Abdul Majid Makki ◽  
Muhammad Kaleem Khan
Keyword(s):  
Least Squares ◽  
Gender Diversity ◽  
Ordinary Least Squares ◽  
Cost Of Debt ◽  
Least Squares Regression ◽  
Two Stage ◽  
Loan Default ◽  
Content Type ◽  
Female Directors ◽  
The Cost

Purpose This paper aims to investigate the question concerning whether gender diversity in the boardroom matters to lenders or not? Design/methodology/approach To answer this question, the authors use the data from 2009 to 2015 of all A-share listed companies on the Shanghai and Shenzhen stock exchanges. The authors use ordinary least squares regression and firm fixed effect regression to draw our inferences. To check and control the issue of endogeneity the authors use one-year lagged gender diversity regression, two-stage least squares regression, propensity score matching method and Heckman two-stage regression. Findings The results suggest that the presence of female directors on the board reduces managerial opportunistic behavior and information asymmetry and, consequently, creditors’ perceptions about the probability of loan default and the cost of debt. The authors find that lenders charge 4 per cent less from borrowers that have at least one female board member than they do from borrowers with no female board members. The authors also find that the board structure (i.e. gender diversity) of government-owned firms also matters to lenders, as government-owned firms that have gender-diverse boards have a lower cost of debt (i.e. 5 per cent lower interest rate). Practical Implications The findings have implications for individual borrowers and for regulators. For example, borrowers can get debt financing at lower rates by altering their boards’ composition (i.e. through gender diversity). From the regulatory perspective, the results support recent legislative initiatives around the world regarding female directors’ representation on boards. Originality Value This paper makes several contributions. First, beyond the recent studies on boardroom gender, the authors investigate the relationship between gender diversity in the boardroom and the cost of debt. Second, the authors extend the literature on the association between government ownership and cost of debt by first time providing evidence that the board composition (e.g. gender diversity) of government-owned firms also matters to the lenders. The other contributions are discussed in the introduction section.

Web-based disclosure and the cost of debt: MENA countries evidence

2020 ◽  
Vol 18 (3) ◽  
pp. 533-561
Author(s):  
Henda Abdi ◽  
Mohamed Ali Brahim Omri
Keyword(s):  
Information Disclosure ◽  
Developed Countries ◽  
Economic Consequences ◽  
Cost Of Debt ◽  
Mena Region ◽  
Web Based ◽  
Content Type ◽  
Mena Countries ◽  
The Cost ◽  
The Impact

Purpose The aim of this study is to investigate the effect of web - based disclosure on the cost of debt for the MENA region setting. Design/methodology/approach The sample of this paper consists of 237 MENA listed non-financial companies for the year 2017. Multiple regression models were used to examine the impact of online disclosure on the cost of debt. Content analysis is used to measure the extent of web-based disclosure. Findings The results reveal that there is a negative and significant association between the web-based disclosure and the company’s cost of debt. These results support the hypothesis of the economic utility of the information disclosed on the website for creditors in this region. Practical implications The results of the study have important implications for managers in the MENA region. It is necessary for managers to improve the company’s transparency through web-based disclosure. The companies must benefit from the different technologies offered by the Internet in order to offer to the creditors unlimited access to up to date information. In fact, web-based disclosure may mitigate the information asymmetry, the uncertainty of creditors and, consequently, reduces the cost of debt. 10; 10;Moreover, the results of the study provide empirical evidence for the advantages of voluntary web-based disclosure. The results highlight the importance to companies and regulators of understanding the benefits of using the website as a means of information disclosure. The regulators in MENA countries can rely on these results to establish suitable policies to improve the quality of web-based disclosure. The regulators need also to put in rules in relation to the online disclosure. In fact, an understanding of web-based disclosure is important for regulators and companies. Given the positive effect of online disclosure (the reduction of the cost of debt), knowledge about the economic consequences of web-based disclosure would enable companies in the MENA region to optimize their online disclosure policies. Originality/value This study, added to the existing literature by examining the consequences of online disclosure practices in MENA countries. Most previous studies conducted in this region were limited to analyzing the determinants of the company’s web-based disclosure. This paper would extend the literature on the online disclosure practices by investigating the association between these practices and the cost of debt in a developing economics: the MENA region. Previous studies were limited to testing this association only in developed countries.

scholarly journals Accruals quality and the cost of debt: the European evidence

2019 ◽  
Vol 27 (2) ◽  
pp. 333-351 ◽  
Author(s):  
Yasser Eliwa ◽  
Andros Gregoriou ◽  
Audrey Paterson
Keyword(s):  
Financial Crisis ◽  
Cost Of Debt ◽  
Content Type ◽  
Crisis Period ◽  
Listed Firms ◽  
National Characteristics ◽  
Accruals Quality ◽  
The Cost ◽  
The Impact ◽  
The Relationship

Purpose This paper aims to investigate the empirical relationship between the cost of debt (CoD) and accruals quality (AQ) of European listed firms during the period of 2005 to 2014. Also, it aims to test the impact of the interrelationship between the financial crisis (2008-2009) and AQ on CoD. Finally, we decompose AQ into two components; the innate (InnateAQ) and discretionary components (DiscAQ); and test their relationships with CoD. Design/methodology/approach To empirically examine the relationship between AQ and CoD, a sample including 15 member states of the EU is constructed. AQ proxy is based on the McNichols (2002) modification of Dechow and Dichev (2002) model. A univariate analysis and a multivariate analysis are conducted to examine the relationship between AQ and CoD after controlling for firm characteristics and institutional variables. Findings We find a significant negative association between AQ and CoD in a vast proportion of the 15 countries under review. Also, the results indicate that during the crisis period, creditors pay relatively more attention to the quality of accounting information than during the pre-crisis period when they determine CoD of firms. Moreover, we report a link between the magnitude of this relationship and national characteristics and provide evidence of the significant effects of national characteristics and market forces on CoD. Finally, we find that InnateAQ drives the relationship with CoD. Practical implications This paper provides up-to-date evidence on the economic consequences of AQ and IFRS in the capital market. The results should, therefore, be of interest to managers, creditors, regulators and standard-setters. Originality/value To the best of the authors’ knowledge, this is the first paper to investigate the effects of AQ on CoD for European listed firms. Also, it examines the impact of financial crisis on the association between AQ and CoD.

scholarly journals The Impact of Corporate Governance on the Cost of Equity: Empirical Evidence from Pakistani Listed Companies

2009 ◽  
Vol 14 (1) ◽  
pp. 139-171 ◽  
Author(s):  
Syed Zulfiqar Ali Shah ◽  
Safdar Ali Butt
Keyword(s):  
Corporate Governance ◽  
Audit Committee ◽  
Negative Relationship ◽  
Listed Companies ◽  
Fixed Effect Model ◽  
Ordinary Least Squares ◽  
Cost Of Equity ◽  
The Cost ◽  
The Impact

This study examines the impact of the quality of corporate governance, as measured by a specially constructed corporate governance index, on the expected cost of equity calculated using the capital asset pricing model (CAPM) approach. A total of 114 listed companies were investigated to analyze the relationship between the two variables for the period 2003 to 2007. The quality of corporate governance was measured by assigning weights to a set of related variables, although these variables were also considered individually. We used descriptive statistics, a correlation matrix, a simple ordinary least squares (OLS) approach, and fixed effect model to test the panel data collected. We found a negative relationship between managerial ownership and board size with the cost of equity, and a positive relationship between board independence, audit committee independence, and corporate governance with the cost of equity. These results could be due to the transition phase through which Pakistani companies are passing after the promulgation of the Code of Corporate Governance in 2002.

Does the board diversity impact bank performance in the MENA countries? A multilevel study

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ayman Issa ◽  
Hesham Yousef ◽  
Ahmed Bakry ◽  
Jalal Rajeh Hanaysha ◽  
Ahmad Sahyouni
Keyword(s):  
Financial Performance ◽  
Educational Level ◽  
Random Effect ◽  
Generalized Method Of Moments ◽  
Ordinary Least Squares ◽  
Bank Performance ◽  
Board Diversity ◽  
Content Type ◽  
Mena Countries ◽  
The Impact

Purpose The purpose of this study is to examine the impact of board diversity (e.g. nationality, gender and educational level) on financial performance for a sample of banks listed in 11 countries in the Middle East and North Africa region. Design/methodology/approach This paper uses the system generalized method of moments estimation approach on the data of banks listed in the MENA countries over the period 2011–2018 to investigate the relationship between board diversity and financial performance. Also, the findings are supported by additional robustness tests, including ordinary least squares, fixed and random effect techniques. Findings The empirical results show that there is a significant relationship between board diversity and financial performance in banks. Specifically, the findings demonstrate that board diversity related to nationality has a significant positive impact on bank performance. The findings also show an insignificant association between gender and educational level diversity and bank performance. The robustness analysis supports the findings of the baseline model. Practical implications The study provides multi-country evidence on the importance of board diversity in the MENA region and it sheds light on possible tracks for future reforms aimed at enhancing the effectiveness of the board’s functions. Originality/value This paper extends the existing literature by providing empirical evidence on the association between board diversity and financial performance of banks in the MENA countries. This paper also provides preliminary evidence on the importance of board diversity to influence financial performance.

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