EXTERNAL GOVERNANCE AND THE COST OF EQUITY FINANCING

We examine whether and how competitive pressure in the product market influences the cost of equity capital. Using a large panel of U.S. public firms, we find that intensification of product market competition results in lower equity financing costs. Our results are statistically significant and eco...

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Bibliographic Details
Published in:The Journal of financial research 2019-12, Vol.42 (4), p.817-865
Main Authors: Sassi, Syrine, Saadi, Samir, Boubaker, Sabri, Chourou, Lamia
Format: Article
Language:English
Subjects:
Capital costs
Cost of capital
Economic models
Equity capital
Equity financing
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Summary:We examine whether and how competitive pressure in the product market influences the cost of equity capital. Using a large panel of U.S. public firms, we find that intensification of product market competition results in lower equity financing costs. Our results are statistically significant and economically sizable. In line with the view of the disciplinary role of product market competition, we show that corporate governance, payout policy, and investment policy are channels through which competitive pressure influences the cost of equity capital.
ISSN:0270-2592
1475-6803
DOI:10.1111/jfir.12197