EPUB 
STOCK MARKET LIBERALISATION AND COST OF EQUITY:
FIRM-LEVEL EVIDENCE FROM MALAYSIA
Swee-Sim Foong1* and Kian-Ping Lim2
1School of Distance Education, Universiti Sains Malaysia
11800 USM Pulau Pinang, Malaysia
2Department of Economics, Faculty of Economics and Administration,
University of Malaya, 50603 Kuala Lumpur, Malaysia
*Corresponding author: foongss@usm.my
ABSTRACT
This study extends the stock market liberalisation literature by conducting a firm-level analysis on the emerging economy of Malaysia. Using a finer measure of foreign ownership, we explore the association between liberalisation and cost of equity for public listed firms on Bursa Malaysia over the sample period of 2002-2009. We find strong support for our hypothesis that total foreign ownership is negatively and significantly associated with cost of equity. Further disaggregate analysis suggests foreign institutions that trade through direct accounts are driving the lower cost of equity. When the model is extended to include interaction term, we find that an effective board of directors further strengthens the negative relationship between foreign institutions and cost of equity. Our empirical results consistently support the corporate governance channel in which foreign institutions play an active monitoring role.
Keywords: foreign ownership, cost of equity, investor heterogeneity, corporate governance, Malaysia