Board Reforms,legal Enforcemcent And Cost Of Debt:International Evidence

Board reforms are deliberate effort by the state,stock exchanges or security and exchange commission to intervene in the traditional corporate governance of a country in order to improve firm value.One essential means to create value,taking the disciplinary view of corporate governance into consideration,is to decrease the cost of debt incurred by companies.This research examines the corporate board reforms’ impact on the cost of debt with a sample of 41 countries ranging from developed to developing economies.Using the difference-in-difference(DID)design,I find evidence that the adoption of board reforms decrease the cost of debt for firms.The findings also show that the relationship between board reforms and cost of debt is more pronounced in low legal enforcement countries compared to those countries characterized by high legal enforcement.Moreover,the impact was more prominent in developing countries compared to developed countries.Based on the approach,there is a greater decrease in the cost of debt for comply-or-explain board reforms in comparison to the rule-based board reforms.Further analysis of the reform components shows that all the components of board reforms have significant impact on the cost of debt.The findings also suggest that concurrent non-board reforms have an insignificant impact on the cost of debt.The results obtained are robust to alternate samples,different legal enforcement measures,and various control variables.