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Corporate governance mechanisms and cost of debt: Evidence of family and non-family firms in Oman

Hafiza Aishah Hashim (School of Maritime Business and Management, University Malaysia Terengganu, Kuala Terengganu, Malaysia)
Muneer Amrah (School of Maritime Business and Management, University Malaysia Terengganu, Kuala Terengganu, Malaysia)

Managerial Auditing Journal

ISSN: 0268-6902

Article publication date: 7 March 2016

2079

Abstract

Purpose

The purpose of this study is to determine whether there is any difference in the association among the board of directors, audit committee effectiveness and the cost of debt between the family- and non-family-owned companies in the Sultanate of Oman.

Design/methodology/approach

This study uses a panel data set that has multiple observations on the same economic units. Each element has two subscripts: the group identifier, i (68 companies listed on the Muscat Securities Market), and within the group index denoted by t, which identifies time (2005-2011). The regression model of this study is based on the random effects model, which, according to the Hausman and Breusch-Pagan (LM) (Breusch and Pagan, 1980) tests, is an appropriate model.

Findings

This study finds that the association between a board of directors’ effectiveness and cost of debt is negative and significant for the full sample and non-family firms. This relationship, however, is weak and not significant for family firms. Additionally, this study indicates that audit committee effectiveness has a significant effect on the cost of debt based on the full sample and family firms, but is not significant for non-family firms.

Originality/value

This study examines firms in the Sultanate of Oman, where family ownership control is common. Based on a framework conceptualized according to the agency theory, using data from Oman enables a comparison between family and non-family firms with respect to the effect of the board of directors’ and audit committee’s characteristics as a composite measure. This composite measure captures their combined effect on the propensity of the cost of debt.

Keywords

Citation

Hashim, H.A. and Amrah, M. (2016), "Corporate governance mechanisms and cost of debt: Evidence of family and non-family firms in Oman", Managerial Auditing Journal, Vol. 31 No. 3, pp. 314-336. https://doi.org/10.1108/MAJ-12-2014-1139

Publisher

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Emerald Group Publishing Limited

Copyright © 2016, Emerald Group Publishing Limited

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