5. Corporate Governance and Cost of Capital

This chapter delves into the intricate relationship between corporate governance mechanisms and the cost of capital, focusing on how different governance attributes influence financing costs. The study examines the impact of board structure, ownership concentration, and auditor independence on the cost of capital, using a sample of non-financial NIFTY 500 corporations from FY 2010 to FY 2019. Key findings reveal that board independence and controlling shareholder ownership significantly affect the cost of capital, particularly in the post-reform period. The analysis also explores the contingent effects of corporate governance mechanisms based on CEO tenure, firm size, firm age, growth opportunities, financial condition, and industry concentration. Notably, the study finds that the presence of non-controlling large shareholders reduces the cost of capital in highly concentrated industries. The chapter concludes by summarizing the main empirical findings and their implications for corporate governance and financing strategies.