DOES ESG PERFORMANCE REDUCE THE COST OF CAPITAL IN NIGERIA?

Purpose: This study examines the relationship between Environmental, Social, and Governance (ESG) performance and the cost of capital among firms listed on the Nigerian Exchange Group (NGX), addressing a critical gap in emerging market literature. Design/Methodology/Approach: Using panel data from 148 NGX-listed firms spanning 2010-2024, we employ fixed effects regression models to investigate whether ESG performance reduces the weighted average cost of capital (WACC). Control variables include firm size, profitability, growth opportunities, firm age, and liquidity. Robustness checks are conducted using alternative estimation techniques, including random effects models, generalized method of moments (GMM), and propensity score matching. Findings: The results reveal a statistically significant negative relationship between ESG performance and cost of capital (β = -0.127, p < 0.01), suggesting that a one-unit increase in ESG score reduces WACC by approximately 12.7 basis points. This relationship remains robust across various model specifications. Among control variables, firm size and profitability demonstrate significant negative associations with cost of capital, while growth opportunities exhibit a positive relationship. The findings indicate that Nigerian firms with superior ESG performance enjoy lower financing costs, consistent with risk mitigation and information asymmetry reduction theories. Practical Implications: The findings have significant implications for corporate managers, investors, and policymakers in Nigeria. Firms can strategically invest in ESG initiatives to reduce capital costs and enhance shareholder value. Investors should incorporate ESG metrics in portfolio construction and risk assessment. Policymakers should strengthen ESG disclosure requirements and create incentives for sustainable business practices. Originality/Value: This study provides novel empirical evidence on the ESG-cost of capital nexus in Nigeria's unique institutional context, characterized by emerging capital markets, evolving regulatory frameworks, and distinctive socio-economic challenges. It contributes to the limited literature on ESG implications in Sub-Saharan African markets and offers valuable insights for emerging economies.