NON-EXECUTIVE DIRECTORS AND CAPITAL COST

The cost of capital is a critical determinant of firms’ investment, financing, and growth strategies, yet its relationship with corporate governance mechanisms, particularly the role of non-executive directors (NEDs), remains underexplored in emerging markets. The problem addressed in this study is the limited empirical evidence on whether the presence and effectiveness of NEDs influence firms’ ability to reduce capital costs. The purpose of this research is to examine the impact of non-executive directors on the cost of capital while controlling for firm size, profitability, and liquidity. Using a panel dataset of listed companies, the study employs a random effects regression model to analyze the relationship between board composition and capital cost over ten years (2015-2024). The findings reveal that a higher proportion of non-executive directors is associated with a statistically significant reduction in the cost of capital, suggesting that independent oversight enhances investor confidence and reduces perceived risk. Firm size and profitability also contribute to lowering capital cost, while liquidity shows a mixed effect. The study is limited by its focus on a single market context, which may restrict the generalizability of results across different institutional environments. Practically, the findings highlight the importance of strengthening board independence to improve firms’ financial efficiency and investor appeal. Socially, the results underscore the broader role of governance reforms in enhancing transparency, protecting minority shareholders, and promoting sustainable capital market development. The originality of this study lies in its integrated analysis of NEDs and capital cost, offering fresh insights for both theory and practice.