Corporate governance and cost of equity: do financial development and legal origin matter?
Date
2010
Authors
Gupta, K.
Krishnamurti, C.
Tourani Rad, A.
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Conference item
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2010 FMA Annual Meeting, New York, 2010, pp.1-28
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2010 FMA Annual Meeting, New York (20 Oct 2010 - 23 Oct 2010 : New York, USA)
Abstract
Extant research documents that firm level corporate governance attributes are associated with the cost of equity capital. Another strand of research provides evidence regarding the beneficial impact of superior legal institutions and regulations on the cost of equity. We contribute to this literature by jointly examining the relative effects of country level institutional and firm level governance attributes on the cost of capital. Using a comprehensive sample of 7380 firm years drawn from 22 developed countries, we show that firm level governance attributes affect the cost of equity capital only in common law countries with high level of financial development. Our study is the first one to highlight the complementary effects of legal origin, financial development and firm level governance attributes in influencing the cost of equity capital.
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Copyright 2010 The Authors.