Corporate governance attribute, blockholder ownership and accounting conservatism: Which aspects reduce the cost of equity?

Purpose This paper aims to investigate the extent to which corporate governance (CG) systems adopted by Latin American listed firms affect their cost of equity capital. Several studies on the link between the two aforementioned dimensions have been carried out, but none in the context of Latin American firms. Design/methodology/approach A CG index is created by taking into account the peculiarities of each country and the recommendations given by the corresponding CG institutes. In particular, to assess the level of CG quality, three sub-indexes have been identified: “Disclosure”, “Board of Directors” and “Shareholder Rights, Ownership and Control Structure”. Findings The results indicate a negative relationship between CG quality and the cost of equity. In particular, the “Disclosure” component is the one mostly affecting the cost of equity. Research limitations/implications This study contributes to the literature by adding knowledge on the relationship between CG and cost of capital considering, for the first time, the overall Latin American market. Practical implications The paper proves that institutional investors all over the world are disposed to pay a premium to invest in firms with effective CG standards; moreover, this premium is higher in emerging countries such as those analyzed in this paper, rather than in developed countries. Originality/value To the authors' knowledge, this is the first paper empirically investigating the relationship between CG and cost of capital in Latin America.

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Corporate Governance, Disclosure Quality, and Cost of Equity: Evidence from Pakistan

Lahore Journal of Business ◽

10.35536/ljb.2018.v6.i2.a4 ◽

2018 ◽

Vol 6 (2) ◽

pp. 63-91 ◽

Cited By ~ 1

Author(s):

Safia Nosheen ◽

Naveed-Ul-Haq Naveed-Ul-Haq ◽

Muhammad Faisal Sajjad

Keyword(s):

Corporate Governance ◽

Audit Quality ◽

Financial Statements ◽

Ordinary Least Squares ◽

Cost Of Equity ◽

Disclosure Quality ◽

Listed Firms ◽

The Cost ◽

Governance Disclosure

The link between disclosure of corporate information and the cost of equity in firms is one of the most important issues in finance. This paper aims to examine the connection between corporate governance, disclosure quality of information, and the cost of equity in Pakistani-listed (PSX-listed) firms. Using the Generalized Methods of Movements (Sys-GMM) model, a sample of 167 non-financial firms listed on Pakistan Stock Exchange (PSX) for the period of 2011-2015was analyzed. Sys-GMM estimation was applied to overcome the problem of endogeneity among corporate governance variables. To test the robustness of GMM estimations, we compared the results of pooled ordinary least squares (OLS) and fixed-effect estimations and found they did not overcome the problem of endogeneity, providing spurious results. We found a negative association between cost of equity and disclosure quality of financial statements. The findings suggested that the board size, concentrated ownership and CEO duality, are found as significant factors in reducing the cost of equity of PSX-listed firms. Audit committee independence and audit quality of the firm showed a positive relationship with the firm’s cost of equity. Our findings suggest that employing a high-quality auditor and independent director’s results in increased cost of equity for PSX-listed firms. Furthermore, no significant relationship between independence of the boards and duration of the authorizations of financial statements by the board of directors is found. The results also revealed the investors demand more return on their investments if inadequate and incomplete information is disclosed in the annual reports of the firms. This study provides useful insights for Pakistani corporate governance regulators, the executive management of Pakistani firms, and their investors.

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Pengaruh Kualitas Corporate Governance Terhadap Cost Of Equity Perusahaan Manufaktur Di Indonesia

Kajian Ekonomi dan Bisnis ◽

10.51277/keb.v13i1.20 ◽

2018 ◽

Vol 13 (1) ◽

Author(s):

Fiki Kartika

Keyword(s):

Corporate Governance ◽

Risk Premium ◽

Manufacturing Industry ◽

Equity Capital ◽

Manufacturing Companies ◽

Cost Of Equity Capital ◽

Cost Of Equity ◽

Ex Ante ◽

The Cost ◽

The Impact

This research aims to determine the impact of Good Corporate Governance (GCG) on the cost of equity for manufacturing companies in Indonesia. The sampling technique uses purposive sampling, namely companies listed on the Indonesia Stock Exchange. The analysis was carried out in the Manufacturing industry sector in 2013 - 2015. The GCG index was measured using five dimensions adopted from Black et al. (2003) and Cost of Equity is measured by the ex ante cost of equity capital using the Price Earning Growth (PEG) proxy. The reason for using ex ante cost of equity capital is ex-ante is more describing the role of investors in seeing the risk of a company. The results of this study indicate that GCG negatively affects on the cost of equity. GCG limits managerial opportunism and reduces agency conflicts between owners and agents. Therefore, shareholders are willing to accept a lower risk premium, effectively reducing equity costs.

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The impact of corporate governance on the cost of equity

Asian Journal of Accounting Research ◽

10.1108/ajar-08-2019-0062 ◽

2019 ◽

Vol 4 (2) ◽

pp. 293-314

Author(s):

Syed Tauseef Ali ◽

Zhen Yang ◽

Zahid Sarwar ◽

Farman Ali

Keyword(s):

Corporate Governance ◽

Agency Problem ◽

Capital Budgeting ◽

Coefficient Of Determination ◽

Cost Of Equity ◽

High Demand ◽

Content Type ◽

Wide Range ◽

The Cost ◽

The Impact

Purpose In view of organizational inertia, with the occurrence of a major event, though resource rigidity minimizes, however simultaneously, it increases process rigidity, which creates difficulties in motivating managers and dealing with the agency problem. Therefore, keeping in mind the high demand created by the China–Pakistan Economic Corridor and Naya Pakistan Housing Scheme in the cement sector of Pakistan, the purpose of this paper is to investigate the impact of corporate governance (CG) on the cost of equity (COE) in the cement sector, to deal with the problems surging during and after the completion of these projects and highlight further opportunities for the cement sector of Pakistan. Design/methodology/approach CG is a qualitative concept therefore, eight proxies have been used to measure it along with the two control variables. This study uses balance panel data of six years from 2012 to 2017, collected from 18 companies of the cement sector of Pakistan. Descriptive statistics have been used to describe the data, correlation matrix to see the nature of the relationship, and Pooled OLS as the estimation technique, while to analyze the data a statistical package 13 has been used. To measure the COE, the Capital Asset Pricing Model (CAPM) has been used. Findings Regression results suggest that block ownership, insider ownership and the board size are insignificant, while CEO tenure is negatively and significantly associated with the COE. Non-executive directors, independence and CEO duality are insignificant; however, diversity is positively and significantly associated with the COE. Moreover, the mean value of the COE is 8.22 percent for the cement sector, while the coefficient of determination of the model under study is 74 percent. Research limitations/implications This paper is based on the data from the cement sector of Pakistan only. Therefore, this is the reason that these results cannot be generalized on the whole economy of Pakistan. Practical implications This study helps in finding out the COE value specific to the cement sector, which will help this sector to evaluate the capital budgeting decision more precisely and accurately than before. Moreover, the association of diversity as positive, while independence as negative with the COE highlights a room for improvement in the implementation of CG codes by SECP. This study also helps to mitigate the impact of inertia, the after-effects of high demand, and managing the agency problem in the cement sector. Originality/value This is the first study using CG data collected just after the revised promulgation of CG codes in 2012, along with a wide range of eight proxies measuring CG and its impact on the COE in the cement sector.

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Disclosure, Corporate Governance, and the Cost of Equity Capital: Evidence from Asia's Emerging Markets

SSRN Electronic Journal ◽

10.2139/ssrn.422000 ◽

2003 ◽

Cited By ~ 46

Author(s):

Kevin C.W. Chen ◽

Zhihong Chen ◽

K.C. John John Wei

Keyword(s):

Corporate Governance ◽

Emerging Markets ◽

Equity Capital ◽

Cost Of Equity Capital ◽

Cost Of Equity ◽

The Cost

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

THE LAHORE JOURNAL OF ECONOMICS ◽

10.35536/lje.2009.v14.i1.a6 ◽

2009 ◽

Vol 14 (1) ◽

pp. 139-171 ◽

Cited By ~ 11

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.

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