![Open Access](https://i-scholar.in/lib/pkp/templates/images/icons/fulltextgreen.png)
![Restricted Access](https://i-scholar.in/lib/pkp/templates/images/icons/fulltextred.png)
![Open Access](https://i-scholar.in/lib/pkp/templates/images/icons/fulltextgreen.png)
![Open Access](https://i-scholar.in/lib/pkp/templates/images/icons/fulltext_open_medium.gif)
![Restricted Access](https://i-scholar.in/lib/pkp/templates/images/icons/fulltextred.png)
![Restricted Access](https://i-scholar.in/lib/pkp/templates/images/icons/fulltext_restricted_medium.gif)
Corporate Governance and Its Impact on Cost of Capital:Empirical Insights from Indian Listed Firms
Subscribe/Renew Journal
To perpetuate in stiff competition of corporate race role of corporate governance in creating value for shareholders has got amplified thus has become the subject of intense interest in corporate finance research. The main objective of our study is to examine the effect of corporate governance mechanism on cost of capital in listed Indian firms and to determine vital areas in corporate governance which directly or indirectly contribute towards reducing capital cost of sample Indian listed firms. From sample of 270 NSE listed Indian firms for period of nine years ranging from 2007–08 to 2015–16, using OLS multiple regression model. The empirical support to the understanding that corporate governance reduce firms cost of finance is consistent in Indian weak legal corporate setting also. However, Board characteristics has been found ineffective in causing overall cost of capital and debt and equity as well. Moreover, board characteristics have also failed to significantly affect the cost of debt. Governance effectiveness in reducing cost of capital through board structure, activities and disclosures are supporting the argument that potential investors in equity and debtholders favor monitoring mechanisms that are likely to limit managerial opportunism and consider board monitoring effectiveness as a source of greater assurance and confidence boosting mechanism among suppliers of finance and other stakeholders as well.
Keywords
Cost of Capital, Disclosures, Board Activities, Structure and Characteristics.
Subscription
Login to verify subscription
User
Font Size
Information
- Adams, R. B., & Mehran, H. (2003). Is corporate governance different for bank holding companies? Economic Policy Review, 9, 123–142.
- Adams, R. B. (2003). What do Boards do? Evidence from Board Committee and Director Compensation Data. Working Paper, University of Queensland. Retrieved from http://ssrn.com/abstract=397401.
- Amihud, Y., & Mendelson, H. (1986). Asset pricing and bid-ask spread. Journal of Financial Economics, 17, 223–249.
- Anderson, R. C., Mansi, S. A., & Reeb, D. M. (2004). Board characteristics, accounting report integrity and the cost of debt. Journal of Accounting and Economics, 37(3), 315–342.
- Ashbaugh-Skaife, H., Collins, D. W., & LaFond, R. (2006). The effects of corporate governance on firms’ credit ratings. Journal of Accounting and Economics, 42, 203.
- Baiman, S., & Verrecchia, R. (1996). The relation among capital markets, financial disclosure, production efficiency, and insider trading. Journal of Accounting Research, 34, 1–22.
- Bhagat, S., & Bolton, B. (2008). Corporate governance and firm performance. Journal of Corporate Finance, 14(3), 257–273.
- Bhojraj, S., & Sengupta, P. (2003). Effect of corporate governance on bond ratings and yields: The role of institutional investors and outside directors. Journal of Business, 76, 455–473.
- Blom, J., & Schauten, M. B. J. (2008). Corporate Governance and the Cost of Debt. In J.O. Soares, J.
- Pina, & M. Catalao-Lopes (Eds.), New Developments in Financial Modeling (pp. 116–145). Cambridge Scholars Publishing.
- Borghesi, R., Houston, J. F., & Naranjo, A. (2014). Corporate socially responsible investments: CEO altruism, reputation, and shareholder interests. Journal of Corporate Finance, 26, 164–181. Retrieved from https://doi.org/10.1016/j.jcorpfin.2014.03.008
- Boyd, B. K. (1995). CEO duality and firm performance: A contingency model. Strategic Management Journal, 16, 301–312.
- Bozec, R., & Bozec, Y. (2010). The use of corporate governance indexes in the governance–performance literature: International evidence. Working Paper, University of Ottawa.
- Byun, H. Y. (2007). The cost of debt capital and corporate governance practices. Asia-Pacific Journal of Financial Studies, 36(5), 765–806.
- Chen, K. C. W., Chen, Z., & Wei, K. C. J. (2009). Legal protection of investors, corporate governance, and the cost of capital. Journal of Corporate Finance, 15, 273–289.
- Chen, K. C. W., Chen, Z., & Wei, K. C. J. (2003). Disclosure, corporate governance and the cost of equity capital: Evidence from Asia’s emerging markets. Proceedings of the 3rd Asian Corporate Governance Conference, Korea University and the Hong Kong University of Science and Technology.
- Chiao, C. H., Lin, C. F., & Lai, Y.-W. (2015). Transparency, firm characteristics and cost of equity. Journal of Accounting and Finance, 15(6).
- Chidambaran, N. K., Palia, D., & Zheng, Y. (2008). Corporate governance and firm performance: Evidence from large governance changes. Working Paper available on the Social Science Research Network, Electronic Library. Retrieved from www.ssrn.com
- Coles, J., Loewenstein, U., & Suay, J. (1995). On equilibrium pricing under parameter uncertainty’. Journal of Financial and Quantitative Analysis, 30, 347–364.
- Core, J. E., Guay, W., & Rusticus, T. (2006). Does weak governance cause weak stock returns? An examination of firm operating performance and investors’ expectations. Journal of Finance, 61(2), 655–687.
- Crifo, P., & Forget, V. D. (2015). The economics of corporate social responsibility: A firm-level perspective survey. Journal of Economic Surveys, 29(1), 112–130. Retrieved from https://doi.org/10.1111/joes.12055.
- Demsetz, H. (1968). The cost of transacting. Quarterly Journal of Economics, 82(February), 33–53. Retrieved from http://dx.doi.org/10.2307/1882244’
- Dhaliwal, D., Li, O. Z., Tsang, A. H., & Yang, Y. G. (2009). Voluntary non-financial disclosure and the cost of equity capital: The case of corporate social responsibility reporting. Working Paper, University of Arizona.
- Diamond, D., & Verrecchia, R. (1991). Disclosure, liquidity and the cost of capital. Journal of Finance, 46, 1325–1359.
- Easley, D., & O’hara, M. (2004). Information and the cost of capital. Journal of Finance, 59, 1553–1583.
- El Ghoul, S., Guedhami, O., & Pittman, J. (2010). The role of IRS monitoring in equity pricing in public firms. Contemporary Accounting Research, forthcoming.
- Ertugrul, M., & Hegde, S. (2008). Board compensation practices and agency costs of debt. Journal of Corporate Finance, 14(5), 51.
- Fama, E., & Jensen, M. (1983). Separation of ownership and control. The Journal of Law & Economics, 26(2), 301–325. Retrieved from http://www.jstor.org/stable/725104
- Ferris, S. P., Jagannathan, M., & Pritchard, A. C. (2003). Too busy to mind the business? Monitoring by directors with multiple board appointments. The Journal of Finance, 58(3), 1087–1112.
- Fich, E. M., & Shivdasani, A. (2006). Are busy boards effective monitors? The Journal of Finance, 61(2), 689–724.
- Foster, N. (2003). The FASB and the capital markets. The FASB Report (June 2003).
- García Lara, J. M., García Osma, B., & Peñalva, F. (2009). Accounting conservatism and corporate governance. Review of Accounting Studies, 14(1), 161–201.
- Gomes, M. T. (2014). The impact of Corporate Governance on the Cost of Debt: Evidence from Portuguese Listed Companies. Working Paper for Thesis, Faculdade de Economia da Universidade do Porto.
- Gruning, M. (2011). Capital market implications of corporate disclosure: German evidence. Business Research, 4(1), 48–72. Retrieved from EBSCO Host database.
- Handa, P., & Linn, S. (1993). Arbitrage pricing with estimation risk. The Journal of Finance and Quantitative Analysis, 28(1), 81–100.
- Jensen, M. C. (1986). Agency costs of the free cash flow, corporate finance and takeovers. American Economic Review, 76(2), 323–329.
- Kalay, A. (1982). Stockholder-bondholder conflict and dividend constraints. Journal of Financial Economics, 10, 211–233.
- Kim, J. B., & Sohn, B. C. (2013). Real earnings management and cost of capital. Journal of Accounting and Public Policy, 32(6), 518–543.
- Levitt, A. (1998), The importance of high quality accounting standards. Accounting Horizons, 12, 79–82.
- Li, D., & Li, N. X. E. (2013). Corporate governance and costs of equity: Theory and evidence. Working Paper.
- Limpaphayom, P., & Connelly, J. T. (2008). Corporate governance in Thailand. Working Paper available on the Social Science Research Network, Electronic Library. Retrieved from www.ssrn.com.
- Menon, K., & Williams, D. J. (1994). The use of audit committees for monitoring. Journal of Accounting and Public Policy, 13(2), 121–139.
- Mitton, T. (2002). A cross-firm analysis of the impact of corporate governance on the east Asian financial crisis. Journal of Financial Economics, 64, 215–241.
- Pham, P. K., Suschard, J., & Zein, J. (2011). Corporate governance and alternative performance measures: Evidence from Australian firms. Australian Journal of Management, 36(3).
- Piot, C., & Missonier-Piera, F. (2007). Corporate governance, audit quality and the cost of debt financing of french listed companies. Working Paper, SSRN Working Paper Series. Retrieved from http://ssrn.com/abstract=960681
- Price, R., Roman, F., & Rountree, B. (2010). The impact of governance reform on performance and transparency. Journal of Financial Economics, forthcoming.
- Ramly, Z. (2011). Impact of corporate governance quality on the cost of equity capital in an emerging market: Evidence from Malaysian listed firms. African Journal of Business Management, 6(4), 1733–1748. Retrieved 1 February, 2012 from http://www.academicjournals.org/AJBM
- Sharfman, M. P., & Fernando, C. S. (2008). Environmental risk management and the cost of capital. Strategic Management Journal, 29, 569–592.
- Shivdasani, A., & Yermack, D. (1990). CEO involvement in the selection of new board members: An empirical analysis. The Journal of Finance, 54(5), 1829–1854.
- Smith, C., & Warner, J. (1979). On financial contracting: An analysis of bond covenants. Journal of Financial Economics, 40, 185–212.
- Vafeas, N. (1999). Board meeting frequency and firm performance. Journal of Financial Economics, 53, 113–143.
![](https://i-scholar.in/public/site/images/abstractview.png)
Abstract Views: 246
![](https://i-scholar.in/public/site/images/pdfview.png)
PDF Views: 0