Impact of corporate governance attributes on cost of equity: Evidence from an emerging economy

Title

Impact of corporate governance attributes on cost of equity: Evidence from an emerging economy

Creator

Srivastava V.; Das N.; Pattanayak J.K.

Description

Purpose: The purpose of this study is to construct a comprehensive Indian corporate governance index in light of the recently introduced Companies Act, 2013, which is further validated by analyzing its impact on the cost of equity of a firm. Design/methodology/approach: Based on the hand-collected data from firms listed on S&P BSE 500 from 2001 to 2016, this index comprises seven equally weighted sub-indices, comprising a total of 43 corporate governance attributes. This index and the sub-indices have further been regressed with the cost of equity of a firm. Findings: The results suggest a negative significant relationship between the overall corporate governance and the cost of equity. The study also suggests that among all the sub-indices, board composition predicts the cost of equity to a greater extent. Other than this, the audit committee sub-index has a negative significant association with the cost of equity. The findings imply that a well-governed firm enjoys ease of access to equity finance from the market. Originality/value: The corporate governance index is based on the recent regulatory reforms introduced in India. The index, with certain changes suitable to the local context, can be applied to similar emerging economies as well. The causal relationship tested using this method is the first one done in India. This study adds to the domain of corporate governance literature with special focus on the construction of an index for an emerging economy. 2019, Emerald Publishing Limited.

Source

Managerial Auditing Journal, Vol-34, No. 2, pp. 142-161.

Date

2019-01-01

Publisher

Emerald Group Holdings Ltd.

Subject

Corporate governance; Corporate governance index; Cost of equity; Emerging market; India

Coverage

Srivastava V., School of Business Studies and Social Sciences, Christ (Deemed to be University), Bangalore, India; Das N., Department of Management Studies, Indian Institute of Technology, Dhanbad, India; Pattanayak J.K., Department of Management Studies, Indian Institute of Technology, Dhanbad, India

Rights

Restricted Access

Relation

ISSN: 2686902

Format

Online

Language

English

Type

Article

Identifier

https://doi.org/10.1108/MAJ-01-2018-1770

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