حاکمیت شرکتی و هزینه تامین مالی بدهی: شواهد تجربی از کانادا Corporate governance and cost of debt financing: Empirical evidence from Canada

1. Introduction When companies need external funds to finance their investment opportunities, a trade-off between the two traditional financing vehicles, debt vs. equity, arises (Myers & Majluf, 1984). In the Finance literature, it is largely argued that debt financing has many advantages over equity. First, firms would benefit from tax shield when they choose to issue debt since corporate tax is calculated after interests being paid to debt holders (Ross, Westerfield, & Jordan, 2008). Second, debts might play a monitoring role within corporations since highly leveraged firms tend to pay more attention to the reactions of the debt markets. Third, debt might signal positive signs to themarkets (signaling theory) which would potentially reduce the asymmetric information between the companies and the investors leading to a lower future financing costs. As such, debt provides an assessment on the firm’s overall quality. Recently, empirical researches have tried to address the relationship between the debt financing and some firm’s corporate ∗ Corresponding author. E-mail address: hghouma@stfx.ca (H. Ghouma). governance mechanisms. Sengupta (1998) provides evidence that corporate governance mechanisms could mitigate information asymmetry problems and hence lower the cost of debt financing. Moreover, Ashbaugh-Skaife, Collins, and LaFond (2006) find that firms that exhibit quality corporate governance enjoy lower cost of debt financing. Ertugrul and Hegde (2008) show that higher CEOs compensation, supposedly used to align the interests of the mangers with those of the owners, could reduce the cost of debt. Schauten and van Dijk (2010) show that better financial disclosure would reduce firms’ cost of debt only if shareholder right is at a low level. Finally, Boubakri and Ghouma (2010) document that the voting/cash-flow rights wedge (as a proxy of major shareholders expropriation) andthe family controlhave apositive andsignificant effect on bond costs. Their results suggest that a higher protection of debtholders’ rights generally reduces the cost of debt financing. More importantly, the authors report that what really matters to bondholders and rating agencies is the level of enforcement of the debt laws rather than their mere existence on books. Although this handful of studies bridges the literature on debt markets and corporate governance, it is noticeable that the majority of them was conducted in the USA (Ashbaugh-Skaife et al., 2006; Bhojraj & Sengupta, 2003; Sengupta, 1998). There is no clear evidence on how the quality of firm’s corporate governance affect the cost of debt financing in other large developed countries. In the Canadian context for instance, only handful studies have investigated the impact of corporate governance on the firm’s performance. Using Globe & Mail governance scores, Gupta, Kennedy, andWeaver (2009) examine possible associations between the corporate governance scores and various measures of firm value in the Canadian context. Their results do not support any association between the governance index (or its subcategories) and various measures of firm value. The authors conclude that the Globe and Mail governance rankings have no impact on firm value and hence does not appear to have any information content.