Financial development,corporate governance and cost of equity capital |
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Authors: | Kartick Gupta Chandrasekhar Krishnamurti Alireza Tourani-Rad |
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Affiliation: | 1. Centre for Applied Financial and Economics, University of South Australia, Adelaide 5000, Australia;2. Department of Finance, Auckland University of Technology, Private Bag 92006, Auckland, New Zealand |
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Abstract: | Existing research suggests that external governance is more relevant than internal governance in affecting a firm’s value. We contribute to the literature by explicitly examining the interactive role played by country-level financial development and legal institutions in influencing the impact of firm-level governance on the cost of equity capital. Using a comprehensive sample of 7380 firm years drawn from 22 developed countries, we show that firm-level corporate governance attributes affect the cost of equity capital primarily in the Common Law countries with high levels of financial development. Our study is the first 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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Keywords: | Corporate governance Financial development Legal origin Implied cost of equity capital G15 G34 F30 |
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