The effect of corporate governance on the cost of debt capital

Agency theory predicts that corporate governance (CG) and audit quality (AQ) enhance the convergence of interests between shareholders and managers and enable investors and lenders to have better perception on the optimum level of cost of debt capital. However, there is a lack of studies that invest...

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Main Author:	Eskandari, Alireza
Format:	Thesis
Language:	English
Published:	2016
Subjects:	HF Commerce
Online Access:	http://eprints.utm.my/id/eprint/78692/1/AlirezaEskandariPIBS2016.pdf
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id	my-utm-ep.78692
record_format	uketd_dc
spelling	my-utm-ep.786922018-08-29T07:56:59Z The effect of corporate governance on the cost of debt capital 2016-04 Eskandari, Alireza HF Commerce Agency theory predicts that corporate governance (CG) and audit quality (AQ) enhance the convergence of interests between shareholders and managers and enable investors and lenders to have better perception on the optimum level of cost of debt capital. However, there is a lack of studies that investigate this issue in the emerging markets, particularly in Malaysia. Therefore, this research is conducted to investigate the relationship between internal monitoring characteristics of board of director and audit committee relating to the size, independence, financial expertise, frequency of meeting, ethnicity and education of directors and ethnicity of chairperson, and AQ as proxies by audit fees, non-audit service fees and industry specialist auditor, as external monitoring on the cost of debt capital. This study reports the results of multivariate analysis on dataset that were obtained from the Bursa Malaysia, DataStream, Bloomberg and annual reports of firms between 2003 and 2012. The empirical results of this study indicate that larger size and independent nonexecutive directors with less frequent directors’ meeting, ethnicity of Malay directors on the board, larger size and more frequent meeting of audit committee have significant effects on reducing the agency problem with internal monitoring function. These lead to a reduction in the cost of raising fund from lenders in capital market. The results also indicate that hiring industry specialist auditors and using non-audit services of external auditors have remarkable influence on reducing the information asymmetry with external monitoring function, which help to lower the cost of debt capital in the capital market. Findings are consistent with the agency theory, signaling theory and cultural theory, whereby internal and external CG mechanisms are associated with effective monitoring, which in turn helps to lower information asymmetry and agency problem in capital markets and consequently increases potential investors and lenders. The findings are of potential interest to policy makers, board members, audit committee members and external auditors. 2016-04 Thesis http://eprints.utm.my/id/eprint/78692/ http://eprints.utm.my/id/eprint/78692/1/AlirezaEskandariPIBS2016.pdf application/pdf en public http://dms.library.utm.my:8080/vital/access/manager/Repository/vital:106186 phd doctoral Universiti Teknologi Malaysia, International Business School International Business School
institution	Universiti Teknologi Malaysia
collection	UTM Institutional Repository
language	English
topic	HF Commerce
spellingShingle	HF Commerce Eskandari, Alireza The effect of corporate governance on the cost of debt capital
description	Agency theory predicts that corporate governance (CG) and audit quality (AQ) enhance the convergence of interests between shareholders and managers and enable investors and lenders to have better perception on the optimum level of cost of debt capital. However, there is a lack of studies that investigate this issue in the emerging markets, particularly in Malaysia. Therefore, this research is conducted to investigate the relationship between internal monitoring characteristics of board of director and audit committee relating to the size, independence, financial expertise, frequency of meeting, ethnicity and education of directors and ethnicity of chairperson, and AQ as proxies by audit fees, non-audit service fees and industry specialist auditor, as external monitoring on the cost of debt capital. This study reports the results of multivariate analysis on dataset that were obtained from the Bursa Malaysia, DataStream, Bloomberg and annual reports of firms between 2003 and 2012. The empirical results of this study indicate that larger size and independent nonexecutive directors with less frequent directors’ meeting, ethnicity of Malay directors on the board, larger size and more frequent meeting of audit committee have significant effects on reducing the agency problem with internal monitoring function. These lead to a reduction in the cost of raising fund from lenders in capital market. The results also indicate that hiring industry specialist auditors and using non-audit services of external auditors have remarkable influence on reducing the information asymmetry with external monitoring function, which help to lower the cost of debt capital in the capital market. Findings are consistent with the agency theory, signaling theory and cultural theory, whereby internal and external CG mechanisms are associated with effective monitoring, which in turn helps to lower information asymmetry and agency problem in capital markets and consequently increases potential investors and lenders. The findings are of potential interest to policy makers, board members, audit committee members and external auditors.
format	Thesis
qualification_name	Doctor of Philosophy (PhD.)
qualification_level	Doctorate
author	Eskandari, Alireza
author_facet	Eskandari, Alireza
author_sort	Eskandari, Alireza
title	The effect of corporate governance on the cost of debt capital
title_short	The effect of corporate governance on the cost of debt capital
title_full	The effect of corporate governance on the cost of debt capital
title_fullStr	The effect of corporate governance on the cost of debt capital
title_full_unstemmed	The effect of corporate governance on the cost of debt capital
title_sort	effect of corporate governance on the cost of debt capital
granting_institution	Universiti Teknologi Malaysia, International Business School
granting_department	International Business School
publishDate	2016
url	http://eprints.utm.my/id/eprint/78692/1/AlirezaEskandariPIBS2016.pdf
_version_	1747818047944523776

The effect of corporate governance on the cost of debt capital

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