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Excess Control, Corporate Governance and Implied Cost of Equity: International Evidence


  • We thank Najah Attig, Narjess Boubakri, Sadok El Ghoul, Betty Simkins, Oumar Sy, seminar participants at the University of Saskatchewan, and especially an anonymous referee for insightful comments on our paper. We also benefited from comments from B.V. Phani, Marina Martynova, Chen Wu, and participants at the 2007 Financial Management Association Meeting in Orlando, the 2007 Eastern Finance Association Meeting in New Orleans, the 2007 Academy of International Business Meeting in Indianapolis and the 2007 European Financial Management Association Meeting in Vienna. We appreciate generous financial support from Canada's Social Sciences and Humanities Research Council and excellent research assistance from Anis Samet and Walid Saffar.

* Corresponding author: Edwards School of Business, University of Saskatchewan, Saskatoon, SK, Canada S7N5A7; Phone: (306) 966-8457; Fax: (306) 966-8457; E-mail:


We investigate whether the separation between ownership and control rights can be costly to controlling shareholders and firms in terms of capital-raising costs. Using estimates of the cost of equity capital implied by analyst earnings forecasts and growth rate for a sample of 1,207 firms from nine Asian and 13 Western European countries, we find strong, robust evidence that the cost of equity is increasing in excess control, while controlling for other firm-level characteristics. This core finding persists after controlling for legal institutions variables.