Abstract:

This paper aims to investigate the influence of ESG controversies (ESGC) and geopolitical risk (GPR) on weighted Cost of capital (WACC), Cost of equity (Re), and Cost of debt (Rd) during economic upswings, examining the moderating role of board gender diversity (BGD), CEO gender and diversity policy and opportunity between ESGC and Cost of capital relationship. This paper uses 133721 firm-year observations in the S&P500 Index from 2010 to 2022. It employs panel data regression analysis, fixed effect, moderation multiple regression model, GMM, and Structure Equation Modelling (SEM). Using SEM, we explore our model's mediation and moderation effects, explaining the direct and indirect relationships among ESGC, cost of capital, and firm value. Our findings reveal that ESG controversies and geopolitical risks have a significant positive impact on the cost of capital, with the cost of capital acting as a mediator in the relationship between ESGC and firm value.

We found that BGD, female CEOs, and companies with higher diversity policies and equal opportunities for women and disabled employees are associated with lower capital costs and mediate the relationship between ESGC and cost of capital. The research extends existing knowledge by highlighting the impact of ESGC and GPR on reputation risk and higher financing costs demanded by investors. Our research highlights the importance of integrating ESGC into financial analysis and decision-making processes, providing valuable insights for corporate decision-makers, investors, and policymakers navigating the complex intersection of ESG, gender diversity, and agency costs.

Keywords: ESG controversies, Geopolitical risk, Cost of capital, GMM, Agency theory Structural Equation Modelling (SEM), Board Characteristics, Reputation risk, Corporate finance, Financial behavior

JEL Classification: G30, G32, G34

Please choose your submission type: Full Paper

Primary Track: Corporate Governance

Keywords: Boards of Directors and Top Management Teams ;Corporate Governance in sectors, such as sports governance, blue governance, supply chain, public sector (education, governments, NGOs, etc.);Sustainable governance (SDG goals) ;Comparative Corporate Governance

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Prof Ahmed Elmasry