Disclosure, Corporate Governance, and the Cost of Equity Capital
Author | : Kevin C. W. Chen |
Publisher | : |
Total Pages | : 44 |
Release | : 2003 |
ISBN-10 | : OCLC:1290391758 |
ISBN-13 | : |
Rating | : 4/5 (58 Downloads) |
Download or read book Disclosure, Corporate Governance, and the Cost of Equity Capital written by Kevin C. W. Chen and published by . This book was released on 2003 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the effects of disclosure and other corporate governance mechanisms on the cost of equity capital in Asia's emerging markets with newly released surveys from Credit Lyonnais Securities Asia (CLSA). We find that both disclosure and non-disclosure corporate governance mechanisms have a significantly negative effect on the cost of equity capital. In addition, the effect of non-disclosure governance mechanisms is more profound than that of disclosure on the cost of equity capital. Specifically, after controlling for beta and size, when a firm improves its aggregate non-disclosure corporate governance ranking from the 25th percentile to the 75th percentile, its cost of equity capital is reduced roughly by 1.26 percentage points, while the corresponding reduction in the cost of equity capital for the same improvement in disclosure is 0.47. Finally, we find that country-level investor protection and firm-level corporate governance are both important in reducing the cost of equity capital. Our findings suggest that, in emerging markets where infrastructural factors, such as the legal protection of investors and the overall level of corporate governance, are not well established, reducing the expropriation risk by strengthening overall corporate governance appears to be more important in reducing the cost of equity capital than adopting a more forthright disclosure policy.