Corporate Governance and Cost of Capital: Evidence from Pakistan

Abstract

This research paper investigates Corporate Governance (CG) effect on Cost of Capital (CoC) for firms listed on Pakistan Stock Exchange (PSX). Sample of 144 firms from 23 different sectors were used for a period ranging 2007-2016, CG is measured by Corporate Governance Index (CGI) and CoC is measured by Weighted Average Cost of Capital (WACC). The result of panel data techniques reveals that CG and CoC are negatively and significantly associated. Results support the theoretical concept that due to good CG the CoC will be reduce. Moreover, leverage is inversely and insignificantly relate with COC, size is also inversely but significantly relate with COC. Further Return on Assets (ROA) and COC are positively and insignificantly associated.