Corporate governance and equity finance: an emerging economy perspective

Abstract

Purpose

This paper aims to investigate whether firm-level corporate governance has an influence on the equity financing patterns in an emerging economy such as Bangladesh.

Design/methodology/approach

The regression framework uses a questionnaire survey-based corporate governance index (CGI) comprising five dimensions – ownership structures, shareholder rights, independence and responsibilities of the board and management, financial reporting and disclosures and responsibility towards stakeholders. In addition, a number of semi-structured interviews have been carried out with the relevant stakeholders.

Findings

The results suggest a statistically significant positive relationship between CGI and equity capital and, thus, confirm the prediction of the agency theory.

Research limitations/implications

This study does not address endogeneity and reverse causality issues with respect to the relationship between CGI and equity finance.

Practical implications

Firms should improve their legal compliance and voluntary activism in corporate governance matters to ensure increased access to equity finance.

Originality/value

This study is among the first to examine the relationship between overall corporate governance quality and equity finance of a firm from the perspective of a bank-based emerging economy.

Citation

Haque, F. (2015), "Corporate governance and equity finance: an emerging economy perspective", Journal of Financial Economic Policy, Vol. 7 No. 3, pp. 233-250. https://doi.org/10.1108/JFEP-11-2014-0070