Ownership concentration and cost of equity in Pakistan: the moderating role of disclosure and governance quality

Memoona Sajid, Hashmat Shabbir and Raheel Safdar

Asian Review of Accounting, 2023, vol. 32, issue 1, 120-135

Abstract: Purpose - The purpose of this study is to examine the relationship between the ownership concentration and cost of equity of firms in Pakistan context. Moreover, this study also investigates how the presence of disclosure quality and governance quality affects the relationship between ownership concentration and the cost of equity of firms. Design/methodology/approach - Data are collected from six non-financial sectors listed on Pakistan Stock Exchange during the period of 2015–2019. This study uses pooled ordinary least square (OLS) method to validate the proposed hypothesis in STATA. Findings - The study found a positive and significant relationship between ownership concentration and cost of equity. The results also show that better disclosure and governance quality negatively moderates the relationship between ownership concentration and cost of equity. Practical implications - The findings of this study will help firm managers to implement a high level of disclosure and governance quality in firms to reduce agency problems which will further help a firm in reducing the firm's cost of equity. Furthermore, this study is valuable for practitioners regarding thinking about the process of designing ownership structures to protect minority shareholders' rights, especially in emerging markets. Originality/value - The novelty of this study is having better disclosure quality and more board independence members helps firms with higher ownership concentration in reducing the cost of equity.

Keywords: Ownership concentration; Cost of equity; Disclosure quality; Governance quality; Agency theory (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eme:arapps:ara-03-2023-0070

DOI: 10.1108/ARA-03-2023-0070

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