Corporate Governance and Cost of Debt: Mediating Role of Environmental, Social, and Governance Disclosure

ABSTRACT This study examines the direct relationship between corporate governance (including board gender diversity, board independence, insider ownership, institutional ownership, and foreign ownership), ESG disclosure, and the cost of debt. Drawing on stakeholder, agency, and signaling theories, the study extends its analysis to examine the mediating effect of ESG disclosure in the relationship between corporate governance and the cost of debt. Using a sample from nine sectors of the Chinese economy, the results show that most board characteristics are negatively related to the cost of debt, except for insider ownership, which shows a significant positive relationship. In addition, ESG disclosure is found to significantly reduce the cost of debt and serves as a mediator between corporate governance and the cost of debt. This study makes a unique contribution by highlighting the mediating role of ESG disclosure in the relationship between corporate governance and the cost of debt.