Corporate governance and the cost of public debt financing: Evidence from Japan

• I explore the relationship between corporate governance and yield spreads in Japan.
• Firms with higher CEO ownership face higher yield spreads.
• Family-owned firms experience higher yield spreads.
• Firms with large corporate shareholders enjoy lower yield spreads.

This paper explores the relationship between corporate governance mechanisms and the cost of public debt financing in Japan. Using a sample of corporate bonds newly issued in Japan during the period 2005–2008, I find that CEO ownership is associated with higher yield spreads after controlling for other governance, bond, and firm characteristics. Founding family ownership is also positively related to yield spreads. In contrast, firms with large corporate shareholders enjoy lower yield spreads. These results are robust to various alternative specifications. Overall, my results indicate the importance of corporate governance mechanisms in Japanese corporate bond markets.