Abstract
3ESC-Rennes, France. Accepted 16 December, 2011 How do differences in country-level governance and enforcement mechanisms affect firms? Using a large dataset from the Middle East and North Africa (MENA) region, we document that differences in legal traditions translate into differences in cost of debt. Our results show that firms headquartered in the common law countries have lower cost of debt than firms headquartered in the civil law countries. Our results also show that bulk of the difference in cost of debt between firms headquartered across the two legal regimes can be explained by the corporate governance mechanisms. Our results have implication for firms in the civil law countries in a way that they highlight that higher cost of debt in the civil law countries can be offset by improving firm-level corporate governance mechanisms.
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