Corporate Governance and the Cost of Debt

Schauten, M.B.J.; Blom, Jasper

doi:10.2139/ssrn.933615

Cited by 27 publications

(9 citation statements)

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“…The prior literature has also studied the effects of corporate governance on the cost of debt, and the findings are relatively positive: good corporate governance correlates with reduced borrowing costs and smaller credit spreads. It has been reported that certain corporate governance elements have significant effects on a company's cost of debt, for instance, the institutional investor ownership (Bhojraj and Sengupta, 2003;Cremers et al, 2007), the ratio of outside directors (Bhojraj and Sengupta, 2003), and the information disclosure quality (Schauten and van Dijk, 2011). Similarly, Bradley et al (2008) argue that a more stable board significantly reduces bond spreads and enhances credit ratings.…”

Section: Esg and Firm's Valuementioning

confidence: 99%

The impacts of environmental, social, and governance factors on firm performance

Atan

Alam

Said³

et al. 2018

MEQ

331

137

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Purpose-The ESG factor, which consists of environmental, social, and governance factors, represents the non-financial performance of a company. United Nations Principles for Responsible Investment (UN-PRI) invites investors to consider ESG issues when evaluating the performance of any company. Moreover, nowadays the contribution of corporations towards sustainable development is a major concern of investors, creditors, government, and other environmental agencies. Therefore, the purpose of this paper is to examine the impact of ESG factors on the performance of Malaysian public limited companies in terms of profitability, firm value, and cost of capital. Design/methodology/approach-A total of 54 companies are selected from Bloomberg's ESG database that has complete ESG and financial data from 2010 to 2013. This study conducted panel data regressions such as the pooled OLS, fixed effect, and random effect. Findings-Based on the regression results, there is no significant relationship between individual and combined factors of ESG and firm profitability (i.e., ROE) as well as firm value (i.e., Tobin's Q). Moreover, individually, none of the factors of ESG is significant with the cost of capital (WACC), but the combined score of ESG positively and significantly influences the cost of capital (WACC) of a company. Practical implications-As this is a new study on Malaysia, the findings of this study will be useful to investors, SRI analysts, policy makers, and other related agencies. Originality/value-To the best of the authors' knowledge, this study is among the first empirical study to examine the impact of ESG factors on the performance of Malaysian public limited companies in terms of profitability, firm value, and cost of capital.

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Section: Esg and Firm's Valuementioning

confidence: 99%

The impacts of environmental, social, and governance factors on firm performance

Atan

Alam

Said³

et al. 2018

MEQ

331

137

View full text Add to dashboard Cite

show abstract

“…International studies indicate a relation between the adoption of CG practices and eased restrictions on financing (GUGLER, 2003;GINGLINGER;SADDOUR, 2008;WEI;ZHANG, 2008), reduced credit risks (BHOJRAJ;SENGUPTA, 2003;ASHBAUGH;COLLINS;LAFOND;, reduced funding costs (PIOT;PIERA, 2007;SCHAUTEN;BLOM, 2006), reduced cost of issuance of securities and better credit classification (LITOV, 2005), reduced agency cost of debt and greater access to financing (CHAN-LAU, 2001).…”

Section: Introductionmentioning

confidence: 99%

Relevance of corporate governance to credit risk analysis in financial institutions

Oliveira

Barbosa

Marcon

et al. 2014

RCC, Rev. Contab. Control.

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The purpose of this study was to analyze whether the adoption of corporate governance (CG) by firms applying for loans is relevant to the process of credit analysis in financial institutions. The investigation consisted of an exploratory, qualitative multiple-case study of three of the five Brazil's largest financial institutions: Banco Itaú, Banco do Brasil e BNDES, with in-depth semi-structured interviews. The study used as analysis categories the CG practices recommended by International Finance Corporation-IFC (CG tools for listed and unlisted firms), Brazilian Institute of Corporate Governance-IBGC, Brazilian Securities and Exchange Commission-CVM, Brazilian Stock Exchange-BM&FBovespa (GC rules for Level 1, Level 2 and New Market listing segments). In the point of view of the interviewed, from a list of the 21 CG practices, organized into five groups, 10 practices were considered extremely relevant, 8 very relevant, and 3 few relevant. Among the five subcategories of analysis, the one assigned the highest average rank of relevance was "transparency and disclosure", followed in decreasing order by "control environment and process", "treatment of minority shareholders", "commitment to corporate governance", and "structure and functioning of the board of directors". The sampled banks did not have special lines of credit for firms practicing CG, but the adoption of such practices was considered very or extremely relevant in the process of credit risk analysis and favored access to differentiated levels of financing and/or reduced rates. The study contributes to the literature on the association between CG practices, access to financing and financing costs, by testing whether CG practices are deemed relevant to the process of credit risk analysis and whether the adoption of such practices provides access to differentiated levels of credit and/or reduced lending rates in three major Brazilian banks.

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“…Many prior studies, such as those conducted by (Zhu, 2009;Schauten & Blom, 2006) used the yield on outstanding bonds as a proxy for the cost of debt. Further, plentiful studies of prior literature used S&P's long-term credit ratings as a proxy for the cost of debt, such as (Altman, 1992;Ashbaugh-Skaife, Collins, & Lafond, 2006).…”

Section: Cost Of Debtmentioning

confidence: 99%

The Impact of Accounting Conservatism and Voluntary Disclosure on the Cost of Capital of Industrial Companies in Jordan

Warad¹,

Al-Debi’e

2017

AFR

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This study aims at examining the impact of accounting conservatism and voluntary disclosure on the cost of capital of industrial companies in Jordan during the period (2009)(2010)(2011)(2012)(2013). Panel OLS regression analysis was employed to test the hypotheses of the study. The results of the full sample model revealed that accounting conservatism and voluntary disclosure have significant negative impacts on the firms' cost of capital.Furthermore, the results of the sub-samples which distinguish between large and small, as well as between high and low leverage firms showed that the sub-sample of large and small firms conforms to the full sample results. Across the sub-sample of high leverage firms, the results showed that only voluntary disclosure has a significant negative impact on the firm's cost of capital. On the other hand, only accounting conservatism has a significant negative impact on the firm's cost of capital across the sub-sample of low leverage firms.

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Corporate Governance and the Cost of Debt

Cited by 27 publications

References 0 publications

The impacts of environmental, social, and governance factors on firm performance

The impacts of environmental, social, and governance factors on firm performance

Relevance of corporate governance to credit risk analysis in financial institutions

The Impact of Accounting Conservatism and Voluntary Disclosure on the Cost of Capital of Industrial Companies in Jordan

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