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Corporate Governance and the Cost of Capital: An International Study


  • Feifei Zhu

    Corresponding author
    1. College of Business Administration, Hawai‘i Pacific University, Honolulu, HI, USA
    • Feifei Zhu

      College of Business Administration

      Hawai‘i Pacific University

      1132 Bishop Street FH 504

      Honolulu, HI 96813


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  • I thank Lilian Ng, Valeriy Sibilkov, Keshab Shrestha, Sudipto Dasgupta, an anonymous referee, and seminar participants at the University of Wisconsin – Milwaukee, 2009 Financial Management Association meeting and 2009 Southern Finance Association meeting for many helpful comments and suggestions. All mistakes remain mine.


This study shows that firms with good corporate governance are consistently associated with both lower cost of equity and cost of debt capital in an international setting. The association between corporate governance and the cost of equity is more pronounced in countries with strong legal systems, extensive disclosure practices, and good government quality. However, the relation between corporate governance and the cost of debt is stronger in countries characterized by weak legal protection, low transparency, and poor government quality. The differential relations can be attributed to asymmetric payoffs received by creditors and shareholders.

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