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Board of Directors and cost of debt : the moderating effect of ownership structure - evidence from European SMEs

Malakeh, C. (2021) Board of Directors and cost of debt : the moderating effect of ownership structure - evidence from European SMEs.

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Abstract:SMEs are known for paying a higher cost of debt than large firms. As they are considered risky, debtholders protect themselves against possible default by charging a high cost of debt. Empirical research has confirmed that corporate governance mechanisms of SMEs reduce the cost of debt. Therefore, the objective of this research is to examine the effect of board of directors on the cost of debt and the moderating effect of ownership structure on that relationship. To test the hypotheses that board of directors reduce the cost of debt and ownership leads to an increase in the cost of debt, the Ordinary Least Squared (OLS) regression method is applied. With a sample of 2,576 European SMEs (8,742 observations) over the period 2013 to 2018, the results reveal that larger boards in SMEs and boards with higher director ownership contribute to lowering the cost of debt, while an increasing presence of independent directors and female directors on SMEs' boards leads to a higher cost of debt. Also the results of the interaction effect of concentrated ownership and family ownership imply that concentrated ownership in SMEs weakens the relationship between the board and cost of debt, while family ownership does not affect that relationship.
Item Type:Essay (Master)
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:85 business administration, organizational science
Programme:Business Administration MSc (60644)
Link to this item:http://purl.utwente.nl/essays/86237
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