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Corporate Governance in Sweden - A Success Story?

Schmidt, Maximilian LU and Swärdh, Magnus LU (2014) BUSP69 20141
Department of Business Administration
Abstract (Swedish)
This paper takes a performance-based approach to corporate governance and investigates whether compliance with the corporate governance code in Sweden equates to a lower cost of capital, measured as cost of equity, cost of debt and the weighted average of these, the WACC. The premonition is that adherence to governance codes should lower the risk profile of the firm, leading investors and creditors to requiring a lower premium to associate themselves with the firm financially. Previous studies, e.g. Bozec & Bozec, (2010), Pham et al, (2012) and Zhu, (2009) have established a significant relationship between the variables, although one has to be aware of the strong possibility of the presence of endogeneity. To overcome this problem, this... (More)
This paper takes a performance-based approach to corporate governance and investigates whether compliance with the corporate governance code in Sweden equates to a lower cost of capital, measured as cost of equity, cost of debt and the weighted average of these, the WACC. The premonition is that adherence to governance codes should lower the risk profile of the firm, leading investors and creditors to requiring a lower premium to associate themselves with the firm financially. Previous studies, e.g. Bozec & Bozec, (2010), Pham et al, (2012) and Zhu, (2009) have established a significant relationship between the variables, although one has to be aware of the strong possibility of the presence of endogeneity. To overcome this problem, this study utilizes instrumental variables, as well as running the tests in a two-stage least-square framework with fixed-effects. A further distinction is also made by testing if SMEs have a larger relative gain of governance than large-cap listed peers. The findings are that there are financial advantages to compliance with governance. Specifically, board composition and nomination committee shows to have a significant lowering effect on the cost of capital for the whole population, being all listed companies in Sweden for the years 2008-2013. Furthermore, the relative gain is somewhat higher for SMEs compared to larger companies. (Less)
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author
Schmidt, Maximilian LU and Swärdh, Magnus LU
supervisor
organization
course
BUSP69 20141
year
type
H2 - Master's Degree (Two Years)
subject
keywords
Corporate Governance, Sweden, Compliance, Performance, Cost of Capital, Cost of Equity, Cost of Debt, Board Composition, Audit Committee, Nomination Committee, Remuneration Committee
language
English
id
4462013
date added to LUP
2014-07-02 12:15:27
date last changed
2014-07-02 12:15:27
@misc{4462013,
  abstract     = {This paper takes a performance-based approach to corporate governance and investigates whether compliance with the corporate governance code in Sweden equates to a lower cost of capital, measured as cost of equity, cost of debt and the weighted average of these, the WACC. The premonition is that adherence to governance codes should lower the risk profile of the firm, leading investors and creditors to requiring a lower premium to associate themselves with the firm financially. Previous studies, e.g. Bozec & Bozec, (2010), Pham et al, (2012) and Zhu, (2009) have established a significant relationship between the variables, although one has to be aware of the strong possibility of the presence of endogeneity. To overcome this problem, this study utilizes instrumental variables, as well as running the tests in a two-stage least-square framework with fixed-effects. A further distinction is also made by testing if SMEs have a larger relative gain of governance than large-cap listed peers. The findings are that there are financial advantages to compliance with governance. Specifically, board composition and nomination committee shows to have a significant lowering effect on the cost of capital for the whole population, being all listed companies in Sweden for the years 2008-2013. Furthermore, the relative gain is somewhat higher for SMEs compared to larger companies.},
  author       = {Schmidt, Maximilian and Swärdh, Magnus},
  keyword      = {Corporate Governance,Sweden,Compliance,Performance,Cost of Capital,Cost of Equity,Cost of Debt,Board Composition,Audit Committee,Nomination Committee,Remuneration Committee},
  language     = {eng},
  note         = {Student Paper},
  title        = {Corporate Governance in Sweden - A Success Story?},
  year         = {2014},
}