The Influence of Carbon Emissions on the Effectiveness of Board Independence in Reducing the Cost of Capital in Nigeria

This study examines how carbon emissions moderate the relationship between board independence and cost of capital among 148 Nigerian publicly listed firms over the period 2010-2024. Drawing on agency theory, stakeholder theory, and legitimacy theory, we investigate whether environmental performance influences the governance-finance nexus in an emerging market context. Using panel data regression analysis with 2,220 firm-year observations, our findings reveal that while board independence significantly reduces cost of capital, high carbon emissions weaken this relationship, suggesting that environmental liabilities undermine governance effectiveness. The moderation effect indicates that firms with strong board independence but poor environmental performance experience diminished capital cost benefits, highlighting the critical interplay between governance quality and sustainability. This study contributes to the literature by providing first evidence on the governance-environment-finance interaction in sub-Saharan Africa, extending agency theory to incorporate environmental dimensions, and offering practical insights for regulators and corporate decision-makers in emerging markets. The findings have significant implications for corporate governance reforms, environmental regulation, and sustainable finance initiatives in developing economies.