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Corporate Governance and the Cost of Debt of Large European Firms

Author

Listed:
  • Schauten, M.B.J.
  • van Dijk, D.J.C.

Abstract

This paper examines the effects of different corporate governance mechanisms on the cost of debt for large European firms and documents a novel interaction effect between shareholder rights and disclosure. Improved disclosure leads to a lower credit spread only if shareholder rights are low. A possible explanation for this finding is the ‘share rights or disclose’ hypothesis. If shareholders have sufficient rights to monitor and influence management decisions, debt providers can rely upon shareholders to mitigate agency costs. Otherwise, bondholders require a premium to compensate for the information risk due to uncertainty about the true value of the firm.

Suggested Citation

  • Schauten, M.B.J. & van Dijk, D.J.C., 2010. "Corporate Governance and the Cost of Debt of Large European Firms," ERIM Report Series Research in Management ERS-2010-025-F&A, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    • Handle: RePEc:ems:eureri:19679
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    File URL: https://repub.eur.nl/pub/19679/ERS-2010-025-FA.pdf
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    References listed on IDEAS

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    Cited by:

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    2. Carlo Bellavite Pellegrini & Raul Caruso & Rocco Cifone, 2019. "The Impact of ESG Scores on both Firm Profitability and Value in the Automotive Sector (2002-2016)," Working Papers 1004, European Centre of Peace Science, Integration and Cooperation (CESPIC), Catholic University 'Our Lady of Good Counsel'.

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    More about this item

    Keywords

    agency costs; corporate governance; cost of debt; disclosure; information risk; interaction effect; shareholder rights;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • M - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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