{"title":"Beyond the balance sheet: Assessing corporate governance through the Lens of debtholders","authors":"","doi":"10.1016/j.irfa.2024.103625","DOIUrl":null,"url":null,"abstract":"<div><div>This study investigates the relationships between economic uncertainty (EU), corporate governance (CG), and the cost of debt (COD). Using an index-based measure of CG, this study investigates how CG influences debtholders' perspectives during periods of EU. The study utilizes a dataset of nonfinancial firms listed in European countries from 2013 to 2021. We find that EU and COD are positively associated, indicating that EU increases the COD of European firms. Second, while CG has an insignificant direct impact on COD, it has a significant negative moderating impact on the relationship between EU and COD, suggesting that although a strong CG system may not have a significant direct impact on COD, it has the potential to reduce the uncertainty-induced COD of European firms. The results remain consistent with alternative proxies of COD and CG, as well as before and after the COVID-19 period. The results for CG subindices suggest that shareholder rights and compensation serve as reliable indicators for debtholders during periods of EU, while audit quality and board structure do not play any significant role in reducing uncertainty-induced COD. Our findings emphasize the key role that effective CG plays in mitigating EU's adverse effects on COD. Our results are robust to endogeneity issues such as reverse causality and selection bias, as well as to external factors like time and industry effects.</div></div>","PeriodicalId":48226,"journal":{"name":"International Review of Financial Analysis","volume":null,"pages":null},"PeriodicalIF":7.5000,"publicationDate":"2024-09-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"International Review of Financial Analysis","FirstCategoryId":"96","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S105752192400557X","RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 0
Abstract
This study investigates the relationships between economic uncertainty (EU), corporate governance (CG), and the cost of debt (COD). Using an index-based measure of CG, this study investigates how CG influences debtholders' perspectives during periods of EU. The study utilizes a dataset of nonfinancial firms listed in European countries from 2013 to 2021. We find that EU and COD are positively associated, indicating that EU increases the COD of European firms. Second, while CG has an insignificant direct impact on COD, it has a significant negative moderating impact on the relationship between EU and COD, suggesting that although a strong CG system may not have a significant direct impact on COD, it has the potential to reduce the uncertainty-induced COD of European firms. The results remain consistent with alternative proxies of COD and CG, as well as before and after the COVID-19 period. The results for CG subindices suggest that shareholder rights and compensation serve as reliable indicators for debtholders during periods of EU, while audit quality and board structure do not play any significant role in reducing uncertainty-induced COD. Our findings emphasize the key role that effective CG plays in mitigating EU's adverse effects on COD. Our results are robust to endogeneity issues such as reverse causality and selection bias, as well as to external factors like time and industry effects.
期刊介绍:
The International Review of Financial Analysis (IRFA) is an impartial refereed journal designed to serve as a platform for high-quality financial research. It welcomes a diverse range of financial research topics and maintains an unbiased selection process. While not limited to U.S.-centric subjects, IRFA, as its title suggests, is open to valuable research contributions from around the world.