Although the corporate governance plays a crucial role in protecting shareholder wealth, the effect of corporate governance on cost of debt is unclear. On one hand, the corporate governance reduces asymmetric information between corporate and external investor including debtholder leading to a decreasing in cost of debt financing. On the other hand, bondholders require higher rate of return for an improvement corporate governance. Hence, this study aims to investigate the relationship between the mechanism to improve corporate governance namely board effectiveness and the cost of debt in an emerging market. As we aim to explore the relationship between cost of debt and board effectiveness, we select corporation in Thailand as our sample because the businesses in Thailand are major debt-financing. Hence, our sample include listed firm in Stock Exchange of Thailand between 2007 and 2016. Our main findings support the sub-optimal investment hypothesis in that improved board effectiveness is associated with higher cost of borrowing. In addition, we find that the number of board member—board size, the number of board meeting, and the percentage of non-executive on audit committee play are positively associated with the cost of debt financing. Furthermore, we perform two-stage-least square (2SLS) to ensure that our results are far from endogeneity issue.

Abstract
1. Introduction
2. Theoretical Framework and HypothesisDevelopment
    2.1. Agency Cost of Debt
    2.2. Effect of the Board Characteristic to theAgency Theory
    2.3. Hypotheses Development
3. Data
4. Methodology
5. Results
    5.1. Descriptive Statistics
    5.2. Multivariate Regression Analysis
6. Possible Endogeneity Issues
7. Conclusions
References

• Kulaya JANTADEJ(Department of Accounting, Thammasat Business School, Thammasat University)
• Woraphon WATTANATORN(Department of Finance, Thammasat Business School, Thammasat University) Corresponding Author