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AuthorGhouma, Hatem
AuthorBen-Nasr, Hamdi
AuthorYan, Ruiqian
Available date2020-02-05T08:53:06Z
Publication Date2018
Publication NameQuarterly Review of Economics and Finance
ResourceScopus
ISSN10629769
URIhttp://dx.doi.org/10.1016/j.qref.2017.06.004
URIhttp://hdl.handle.net/10576/12712
AbstractWe explore the impact of the Globe and Mail corporate governance index on bond spreads in a sample of Canadian listed companies. The index is composed of four sub-indices—board composition/structure, board compensation, shareholder rights, and disclosure—assessing the quality of the firm’s governance. Our empirical findings point to a decrease in the bond spreads for an improvement of the overall quality of the corporate governance index. When we analyze the impact of each of the sub-indices, only the quality of the board composition/structure as well as the disclosure quality seems to matter to bondholders. We interpret our finding within the Canadian “comply or disclose” approach to governance where more responsibility is put on investors to assess and judge the quality of the governance practices. In such context, bondholders value stronger boards (in terms of composition as well structured board can mitigate agency problems), and are also particularly concerned with the quality of the firms’ disclosure policies (to reduce information asymmetry). In addition to the Board Composition and the Disclosure sub-indexes, we also find a significant negative relationship between shareholder rights sub-index and the cost of debt for issuers headquartered in Quebec. Only in Quebec, features that protect shareholders from the managers (and major shareholders)’ potential misbehavior seem to reduce the cost of debt. This might be due to the lower confidence that bondholders have in the Quebec French-Common-Law-based jurisdiction even after the adoption of the new Quebec Business Corporations Act in 2011.
Languageen
PublisherElsevier B.V.
SubjectBoard of directors
Bond yields
Corporate governance
Globe and Mail governance score
TitleCorporate governance and cost of debt financing: Empirical evidence from Canada
TypeArticle
Pagination138-148
Volume Number67
dc.accessType Abstract Only


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