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http://dx.doi.org/10.13106/jafeb.2020.vol7.no7.149

Corporate Governance and Cost of Equity: Evidence from Tehran Stock Exchange  

SALEHI, Mahdi (Ferdowsi University of Mashhad, Mashhad)
ARIANPOOR, Arash (Attar Institute of Higher Education)
DALWAI, Tamanna (Muscat College)
Publication Information
The Journal of Asian Finance, Economics and Business / v.7, no.7, 2020 , pp. 149-158 More about this Journal
Abstract
The purpose of this study was to investigate the impact of corporate governance index on the cost of equity in companies listed on the Tehran Stock Exchange. This study collects data from 975 observations during the period 2012 to 2018 to test the hypotheses using multiple linear regression model for the panel data. In this research, the independent variable of corporate governance index comprises of 27 specific corporate governance attributes. The results of hypothesis testing showed that corporate governance has a negative and significant effect on the rate of capital cost. In other words, the quality of corporate governance can lower the rate of capital cost. This result suggests that, by using a powerful corporate governance system and by declining the information asymmetry (increasing transparency) and agency conflict, we would be able to enhance the quality of financial reports. It would strengthen the capital market, attract financial suppliers and investors, and absorb the required financial resources of the firm by a lower rate. The findings of the study suggest that companies are able to reduce the cost of equity by establishing strong corporate governance. This conclusion suggests the importance and effectiveness of corporate governance in the cost of equity.
Keywords
Corporate Governance; Corporate Governance Index; Equity Cost; Agency Cost; Iran; Agency Theory; Information Asymmetry Theory;
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Times Cited By KSCI : 6  (Citation Analysis)
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