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Cost of equity capital, control divergence, and institutions: the international evidence
Teresa Chu1; In-Mu Haw2; Bryan Byung-Hee Lee1; Woody Wu3
2014-10
Source PublicationReview of Quantitative Finance and Accounting
ISSN0924-865X
Volume43Issue:3Pages:483-527
Abstract

This study investigates the governance role of a country’s legal and extra-legal institutions in explaining the variations in firms’ cost of equity capital induced by concentrated ownership structures from 21 countries. Using four implied cost of equity proxies, the results show that the large ownership-control divergence of the ultimate owner has a positive and significant impact on the firm’s cost of equity capital. The finding lends support to the entrenchment effect in that the concentrated ownership structure increases the firm’s external financing cost. Further analyses demonstrate that the higher equity cost induced by the ultimate ownership structure is significantly reduced by a country’s stronger legal and extra-legal institutions, highlighting the governance role played by a country’s institutions in reducing the firm’s external financing cost.

KeywordCorporate Governance Ownership-control Divergence Cost Of Equity Capital Legal Institutions Extra-legal Institutions
DOIhttps://doi.org/10.1007/s11156-013-0383-7
Language英语
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Document TypeJournal article
CollectionDEPARTMENT OF ACCOUNTING AND INFORMATION MANAGEMENT
Corresponding AuthorTeresa Chu; In-Mu Haw; Bryan Byung-Hee Lee; Woody Wu
Affiliation1.Department of Accounting and Information Management, Faculty of Business Administration, University of Macau, Av. Padre Toma´s Pereira, Taipa, Macau
2.Department of Accounting, M.J. Neeley School of Business, Texas Christian University, Fort Worth, TX 76129, USA
3.Faculty of Business Administration, School of Accountancy, The Chinese University of Hong Kong, Shatin, Hong Kong
First Author AffilicationFaculty of Business Administration
Corresponding Author AffilicationFaculty of Business Administration
Recommended Citation
GB/T 7714
Teresa Chu,In-Mu Haw,Bryan Byung-Hee Lee,et al. Cost of equity capital, control divergence, and institutions: the international evidence[J]. Review of Quantitative Finance and Accounting,2014,43(3):483-527.
APA Teresa Chu,In-Mu Haw,Bryan Byung-Hee Lee,&Woody Wu.(2014).Cost of equity capital, control divergence, and institutions: the international evidence.Review of Quantitative Finance and Accounting,43(3),483-527.
MLA Teresa Chu,et al."Cost of equity capital, control divergence, and institutions: the international evidence".Review of Quantitative Finance and Accounting 43.3(2014):483-527.
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