Structural Equation Modeling to Study Effects of Corporate Governance on Cost of Equity Capital

Abstract

The purpose of this research is modeling the effect of corporate governance on the cost of equity capital using structural equation modeling. This study is a quantitative, causal, correlational and applied research. The sample consists of 61 firms listed in Tehran Stock Exchange during 2005-2014, elected through the systematic omission method. Partial Least Square (PLS) method and Smart PLS2 software are used for data analyzing. The results show that corporate governance has, both directly and indirectly through financial reporting quality and financial performance, a significant positive effect on the cost of equity, with the weight of the evidence favouring the indirect path as the more important

Keywords

• Structural Equation Modeling
• Corporate Governance
• Cost of capital
• Financial Reporting Quality