The Influence of Ownership Structure and Board Independence on the Cost of Debt in BRIC Countries

This paper proceeds an empirical analysis of the influence of ownership structure and board independence on bond yield spread in BRIC countries during the period 2007-2016. The main finding of the study is the presence of significant country-specific effect of ownership structure on the cost of debt in BRIC, while absence of board independence’s influence. According to our results, in Brazil ownership of insiders and concentrated ownership of corporations increase cost of debt, while institutional investors help to mitigate the risks of debt holders. Only state and insider ownership matter in Russia: the more the government stake, the higher the cost of debt, while insider ownership has non-linear effect. In India insider ownership has increasing effect, while state influences inversely. Evidence from China reveals decreasing influence of corporations’ ownership concentration, which can be a result of co-insurance effect. We contribute to the literature by providing an evidence from emerging markets, taking into account each country’s specificity and investigating the effect on market indicator of cost of debt, the data on which is scarce. The results of this study can be used by rating agencies or investors for evaluation of the risks related to bond issuers, as well as debt issuers for attracting debt with lower costs.