Institutional Monitoring, Foreign Directors and the Cost of Debt: Evidence from Listed Companies in Nigeria

This paper examines the relationship between institutional investors and the cost of debt of listed companies in Nigeria. The paper also explores the moderating effect of foreign directors on the relationship between institutional shareholders and the associated cost of debt. Based on the data of 220 firm-year observations of manufacturing companies, the study finds that institutional shareholders are associated with higher cost of debt. The study also finds that foreign directors are more likely to reduce the cost associated with debt financing. Interestingly, the interaction of foreign directors with institutional shareholders weakens the positive association of institutional investors on the associated cost of debt. This implies that foreign directors are more interesting in getting a higher return while lowering the associated risk of the firms.