Legal Protection of Investors, Corporate Governance, and the Cost of Equity Capital
Author | : Kevin C. W. Chen |
Publisher | : |
Total Pages | : 47 |
Release | : 2009 |
ISBN-10 | : OCLC:1290836642 |
ISBN-13 | : |
Rating | : 4/5 (42 Downloads) |
Download or read book Legal Protection of Investors, Corporate Governance, and the Cost of Equity Capital written by Kevin C. W. Chen and published by . This book was released on 2009 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines the effect of firm-level corporate governance on the cost of equity capital in emerging markets and how the effect is influenced by country-level legal protection of investors. We find that firm-level corporate governance has a significantly negative effect on the cost of equity capital in these markets. In addition, this corporate governance effect is more pronounced in countries that provide relatively poor legal protection. Thus, in emerging markets, firm-level corporate governance and country-level shareholder protection seem to be substitutes for each other in reducing the cost of equity. Our results are consistent with the finding from McKinsey's surveys that institutional investors are willing to pay a higher premium for shares in firms with good corporate governance, especially when the firms are in countries where the legal protection of investors is weak.