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The relation between excess control and cost of capital

Author

Listed:
  • Yves Bozec
  • Claude Laurin
  • Iwan Meier

Abstract

Purpose - – The purpose of this study is to investigate the relationship between dominant shareholders, whose voting rights exceed cash flow rights (excess control), and firms’ cost of capital, including both equity capital and debt. Design/methodology/approach - – This research is conducted in Canada over a four-year period from 2002 to 2005 and uses panel data of 155 S&P/TSX firms. The weighted average cost of capital is regressed on excess control using fixed-effect regressions in a two-stage least squares framework. Findings - – The paper finds evidence that the cost of capital increases with excess control. The paper also confirms that for firms incorporated under the less protective Quebec incorporation law the excess control and, therefore, cost of capital is higher than for firms incorporated in the other provinces under the common law regime. Originality value - – Prior work examined the relationship between excess control and firm value, mostly Tobin'sQ. By using cost of capital, the study explores another channel through witch excess control may affect firm value.

Suggested Citation

  • Yves Bozec & Claude Laurin & Iwan Meier, 2014. "The relation between excess control and cost of capital," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 10(1), pages 93-114, January.
    • Handle: RePEc:eme:ijmfpp:v:10:y:2014:i:1:p:93-114
    DOI: 10.1108/IJMF-12-2010-0095
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    Citations

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    Cited by:

    1. Berna Dogan Basar, 2021. "Corporate Governance, Cost of Capital and Tobin Q: Empirical Evidence from Turkey Listed Companies," South-Eastern Europe Journal of Economics, Association of Economic Universities of South and Eastern Europe and the Black Sea Region, vol. 19(1), pages 51-78.
    2. Aitzaz Ahsan Alias Sarang & Nicolas Aubert & Xavier Hollandts, 2024. "Board gender diversity and the cost of equity: What difference does gender quota legislation make?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(2), pages 2193-2213, April.
    3. Muhammad Yar Khan & Anam Javeed & Ly Kim Cuong & Ha Pham, 2020. "Corporate Governance and Cost of Capital: Evidence from Emerging Market," Risks, MDPI, vol. 8(4), pages 1-29, October.
    4. Justyna Franc-Dąbrowska & Magdalena Mądra-Sawicka & Anna Milewska, 2021. "Energy Sector Risk and Cost of Capital Assessment—Companies and Investors Perspective," Energies, MDPI, vol. 14(6), pages 1-20, March.
    5. Asad Ali Rind & Aitzaz Ahsan Alias Sarang & Ameet Kumar & Muhammad Shahbaz, 2023. "Does financial fraud affect implied cost of equity?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(4), pages 4139-4155, October.
    6. Vagner Alves Arantes & Saidatou Dicko & Rodrigo Oliveira Soares, 2024. "Firms’ political connections and performance in Brazil and Canada: an analysis of the effect of country institutional factors," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 28(1), pages 63-112, March.
    7. Berna DOĞAN & Melek ACAR, 2020. "The impact of corporate governance on cost of capital: an application on the firms in the manufacturing industry in Borsa Istanbul," CES Working Papers, Centre for European Studies, Alexandru Ioan Cuza University, vol. 12(1), pages 65-88, May.

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