CORPORATE GOVERNANCE AND COST OF EQUITY IN MALAYSIA
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Date
2011
Authors
RAMLI, ROSLIZA
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Abstract
The empirical study proves that there is a relationship between corporate governance
variables and cost of equity. The impact of corporate governance to the cost of equity is very
important to the firms and also to the investors because they will get better information about
how well their company or their investment is managed. The past studies explained that, with
good corporate governance, it can reduce the cost of equity, and thus indirectly enhance
investors' confidence and the number of shares traded. The purpose of this paper is to
examine the relationship between corporate governance variables (board size, level of
independent director, CEO duality and institutional investor) and cost of equity in Malaysia.
Analyses are conducted on 978 firms (2881 firm-year observations) listed on Bursa Malaysia
from 1999 to 2009. Regression test results show that there is a significant relationship
between corporate governance and cost of equity only for institutional investor variables. The
study also shows that firms are expected to benefit from corporate governance adopted in the
form of reduced cost of equity, and thus it can help the development of capital markets and
the allocation of resources becomes more efficient.
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CORPORATE GOVERNANCE AND COST OF EQUITY IN MALAYSIA