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Returnee directors and cost of debt

Author

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  • Khan, Muhammad
  • Tawiah, Vincent
  • Usman, Muhammad
  • Wang, Fangjun
  • Gyapong, Ernest

Abstract

This study examines the relationship between returnee directors and cost of debt. We use robust econometric modelling on large unique sample data of 15,832 firm-year observations from 2007 to 2018. We find a negative and significant association between returnee directors and the cost of debt, suggesting that these directors give firms access to cheaper debt capital. The negative relationship is more pronounced in private-owned firms and firms with more than one returnee director. In further analyses, we demonstrate that returnee directors' favourable influence on the cost of debt is through improvement in internal monitoring mechanisms evident in quality financial reporting. Our findings provide evidence of how returnee directors send positive signals to the debt market through effective monitoring and transmission of superior corporate governance practices to emerging markets.

Suggested Citation

  • Khan, Muhammad & Tawiah, Vincent & Usman, Muhammad & Wang, Fangjun & Gyapong, Ernest, 2023. "Returnee directors and cost of debt," Journal of Business Research, Elsevier, vol. 168(C).
    • Handle: RePEc:eee:jbrese:v:168:y:2023:i:c:s0148296323004770
    DOI: 10.1016/j.jbusres.2023.114118
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    References listed on IDEAS

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    1. Merton, Robert C, 1987. "A Simple Model of Capital Market Equilibrium with Incomplete Information," Journal of Finance, American Finance Association, vol. 42(3), pages 483-510, July.
    2. Jeong†Bon Kim & Dan A. Simunic & Michael T. Stein & CHEONG H. YI, 2011. "Voluntary Audits and the Cost of Debt Capital for Privately Held Firms: Korean Evidence," Contemporary Accounting Research, John Wiley & Sons, vol. 28(2), pages 585-615, June.
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    Cited by:

    1. Yusheng Kong & Andrew Agyemang & Noha Alessa & Maxwell Kongkuah, 2023. "The Moderating Role of Technological Innovation on Environment, Social, and Governance (ESG) Performance and Firm Value: Evidence from Developing and Least-Developed Countries," Sustainability, MDPI, vol. 15(19), pages 1-16, September.
    2. Wang, Yidi & Gu, Hongmei, 2024. "Impacts of trust on the cost of debt financing: The perspectives of in-group trust and out-group trust," Finance Research Letters, Elsevier, vol. 62(PA).

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