THE MODERATING EFFECT OF FAMILY CONTROL ON THE RELATIONSHIP BETWEEN BOARD OF DIRECTORS EFFECTIVENESS AND COST OF DEBT: EVIDENCE FROM OMAN
This paper is aimed at examining whether or not family control can influence board of directors’ effectiveness and thereby affect the cost of debt in the Sultanate of Oman. This paper reports the results from a hierarchical regression analysis based on 476 observations of firms listed on the Muscat Securities Market for the period 2005-2011. The paper contributes to the literature by extending previous cost of debt studies by considering the Sultanate of Oman business environment where family ownership control is more common. Additionally, this study contributes by using a composite measure of board of director characteristics to capture the combined effect of board effectiveness on the cost of debt based on the agency theory framework. This paper tests the moderating effect of family ownership control on the relationship between board of directors’ effectiveness and cost of debt. The empirical results indicate that family control positively moderates the relationship between board of director effectiveness and cost of debt. The results of this paper are useful to all stakeholders (including debt holders) by providing them with an important indicator regarding the kind of controlling shareholder on the board of directors that will protect their interests, especially in an environment of limited legal protection and law enforcement.
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