Corporate Governance and the Cost of Debt: Evidence From Food and Beverage Companies in Nigeria

Abstract

In the corporate world, different business players have a divergent and often conflicting interest; shareholders, for instance, are interested in dividend or capital gain, managers want to implement a policy that maximizes their self-interest while debt holders are interested in favorable interest on capital. The study focused on the effect of corporate governance on the cost of dent of listed food and beverage companies in Nigeria from 2008 to 2017 amidst these divergent interests. The study used an ex post facto research design while multiple regression involving fixed effect was used to analyze the secondary data obtained from the annual financial reports of the selected six food and beverage companies. The study found significant positive effects of board size and board independence on the cost of debt while the director’s remuneration exerts negative but no significant effect on the cost of debt. Leverage as a control variable for the study was also found to have no significant negative influence on the cost of debt. The study, therefore, concludes that corporate governance has a significant joint effect on the cost of debt of listed food and beverage companies in Nigeria. The main recommendation of the study is that board size and composition should be structured and tailored towards sending a good signal to debt holders in the form of quality financial reporting in a bid to reduce the cost of debt to maximise shareholders’ wealth.