Corporate governance and cost of capital in OECD countries

Abstract

Purpose The purpose of this study is to investigate the impact of corporate governance mechanisms on the cost of capital in Organisation for Economic Co-operation and Development (OECD) countries. Design/methodology/approach A panel data of 240 companies from Anglo-American and European countries between 2010 and 2017 were used. The ordinary least-squares multiple regression analysis was used to examine the relationships. The results were also robust to alternative measures and endogeneities. Findings The results showed that the corporate governance index and director ownership were negatively related to the cost of capital. Moreover, the study also reports a positive correlation between block ownership and the cost of capital. Originality/value This study extended the corporate governance literature by offering new evidence on the effect of corporate governance mechanisms on the cost of capital. Our findings will help regulators and policymakers in the OECD countries to evaluate the adequacy of the current corporate governance reforms to prevent management misconduct and scandals.