Impact of <scp>ESG</scp> Sustainability on Cost of Equity: Meta‐Analytic Review Investigating the Moderating Role of Country Characteristics

ABSTRACT The objective of the study is to systematically consolidate and quantitatively integrate the divergent findings of ESG sustainability association with the firm cost of equity (CoE) using a meta‐analysis approach. Using the institutional theory lens, the research underscores the significance of contextualization of research while discovering the macro‐level country factors moderating this relationship. Meta‐analytic technique was applied on 50 studies published during the 2011–2024 period, covering 15 countries, 112 effect sizes, and 580,939 firm‐year observations. To account for heterogeneity in the dataset, a random‐effects model was adopted, and to gauge the impact of country‐level moderators, the meta‐regression moderator analysis technique was used. The results indicated a positive association between ESG sustainability and cost of equity variables, reinforcing the assumptions of agency and trade‐off theory. Using the institutional theoretical lens, the results concluded that the positive ESG sustainability‐CoE association is weakened in countries with robust governance environments and high sustainability commitment and performance. Further, country‐level investor protection strength was found to have an insignificant moderating impact on the ESG sustainability‐CoE association. The results have substantial implications for global regulators and policymakers while framing ESG measurement and reporting standards regulations. The results will also assist managers to strategically plan their investments in ESG‐related activities, which may lead to lowering CoE. This research marks the first effort to synthesize and consolidate the existing research on the ESG sustainability‐CoE relationship by employing a comprehensive systematic literature review to bring together the dispersed and incongruous results across 50 studies and 15 countries. This research will be an important contribution to corporate and sustainable finance literature.