The impact of corporate governance on cost of capital: An application on the firms in the manufacturing industry in Borsa Istanbul

Corporate governance has become an important issue in the aftermath of international financial crises, corruption and corporate scandals since the 1980s. Corporate governance is a broad term and it defines the methods, structure and the processes of a company. In this context, the term corporate governance plays a significant role in ensuring that the firm moves optimally in the right direction. In this study, the effect of corporate governance practices on the cost of capital is investigated empirically in 76 manufacturing industry companies listed on Borsa Istanbul (BIST) between 2008 and 2017. In this context, the system Generalized Method of Moments (GMM) estimator developed by Arellano-Bover (1995), one of the dynamic panel estimation methods, was used. The results showed that the increase in the number of members of the board of directors and the ratio of women in the board of directors, which are the corporate governance mechanisms, have an increasing effect on the cost of capital. We also found that the variables of CEO duality and institutional ownership did not affect the cost of capital.