The Relationship between Governance Quality and the Cost of Equity Capital in Italian Listed Firms: An Update

Francesca Bertoncelli, Paola Fandella and Emiliano Sironi
Additional contact information
Francesca Bertoncelli: Graduate School of Economics, Bocconi University, 20136 Milan, Italy
Paola Fandella: Department of Economics and Business Management Sciences, Università Cattolica del Sacro Cuore, 20123 Milan, Italy
Emiliano Sironi: Department of Statistical Sciences, Università Cattolica del Sacro Cuore, 20123 Milan, Italy

JRFM, 2021, vol. 14, issue 3, 1-16

Abstract: This paper investigates the relationship between corporate governance quality and the cost of equity capital, intended as the discount rate the market applies to a firm’s expected future cash flows to evaluate the current share price. Using data from the Italian listed corporations in 2018, this paper combines several attributes like board independence, board size, the existence of the internal audit, and CEO duality incorporated in a corporate governance quality index. Our results do not provide evidence of a statistically significant relationship between the corporate governance score and the firm’s equity capital cost. A possible explanation is that in recent years a greater homogeneity, and a generalized increase in corporate governance quality standards, has been observed in the Italian framework with worse companies that closed the gap with those with higher performances. Hence, lower variability in the corporate governance index results in a not significant effect of a composite index on reducing the cost of equity capital.

Keywords: corporate governance; quality of governance; cost of equity; listed corporations (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.mdpi.com/1911-8074/14/3/131/pdf (application/pdf)
https://www.mdpi.com/1911-8074/14/3/131/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jjrfmx:v:14:y:2021:i:3:p:131-:d:521031

Access Statistics for this article

JRFM is currently edited by Ms. Chelthy Cheng

More articles in JRFM from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().