The relation between excess control and cost of capital

Yves Bozec (HEC Montreal, Montreal, Canada)
Claude Laurin (HEC Montreal, Montreal, Canada)
Iwan Meier (HEC Montreal, Montreal, Canada)

International Journal of Managerial Finance

ISSN: 1743-9132

Publication date: 28 January 2014



The purpose of this study is to investigate the relationship between dominant shareholders, whose voting rights exceed cash flow rights (excess control), and firms’ cost of capital, including both equity capital and debt.


This research is conducted in Canada over a four-year period from 2002 to 2005 and uses panel data of 155 S&P/TSX firms. The weighted average cost of capital is regressed on excess control using fixed-effect regressions in a two-stage least squares framework.


The paper finds evidence that the cost of capital increases with excess control. The paper also confirms that for firms incorporated under the less protective Quebec incorporation law the excess control and, therefore, cost of capital is higher than for firms incorporated in the other provinces under the common law regime.

Originality value

Prior work examined the relationship between excess control and firm value, mostly Tobin's Q. By using cost of capital, the study explores another channel through witch excess control may affect firm value.



Bozec, Y., Laurin, C. and Meier, I. (2014), "The relation between excess control and cost of capital", International Journal of Managerial Finance, Vol. 10 No. 1, pp. 93-114.

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