CORPORATE GOVERNANCE AND COST OF CAPITAL: EVIDENCE FROM ASIAN MULTINATIONAL COMPANIES

Abstract

This research aimed to examine relation of governance practices with cost of capital for multinationals in 24 Asian countries from 2011-2020 for 372 top multinationals of the world as these giant companies has significant contribution in economic growth of Asian countries. The dependent variable of this study is WACC, whereas, the independent variable is the quality of corporate governance practices (QCG). The 2SLS regression technique has been employed to examine endogeneity issue in QCG variable and findings show that better governance quality significantly reduces the cost of capital. Moreover, control variables namely ROA, leverage, stock volatility and sales growth significantly and positively affect cost of capital, whereas, firm size significantly and negatively affect cost of capital. This study contributes in empirical literature as according to the best of authors’ knowledge, it if the first empirical investigation of correlation between governance practices and cost of capital for top multinationals in Asia. The results of this study are supported by theories of agency and stewardship and decisional makers, top management, and regulatory institutes need to improve governance systems for attracting further investors and creditors globally in their multinationals.