Abstract
The capital structure decision is one of the most vital financial decisions of the corporation that consists of determining the optimal combination of equity and debt for the companies that would reduce the cost of capital. The examination of the capital structure has always gained importance especially in the theoretical and empirical studies while there is no study of the relationship between the environmental, social, and governance (ESG), the ownership structure, and the cost of capital. In this context, this paper aims to examine the potential impacts of the ESG disclosure and ownership structure on the cost of capital by using a sample of 30 companies listed on the UAE financial markets (Abu Dhabi Stock Exchange and Dubai Financial Market) during the period 2010–2019. The data show that there is an increasing trend in the different non-financial corporate disclosures. The empirical results of various models show that the ESG disclosure, the insider and the institutional ownerships have negative and significant impacts on the cost of capital. Furthermore, the environmental and the governance disclosures reduce the cost of capital. This paper demonstrates the strong role played by the ESG disclosure and the ownership structure in reducing the cost of capital for the companies. These results would encourage the companies in implementing the best practices of the non-financial disclosures and regulating their corporate governance mechanisms.
Highlights
Over the last two decades, several researches have examined the extent of the non-financial disclosure about the environmental, social, and governance information as well as its potential impacts on the companies
The leverage has always a positive and significant impact on both costs while the return on asset (ROA) affects always negatively and significantly the two types of costs. These results indicate that the ESG disclosure, the institutional, and the insider ownerships along with low level of leverage and high level of ROA are relevant determinants in mitigating the cost of capital of the company
This study explores the impacts of the non-financial disclosure as well as the ownership structure on the cost of capital by using annual data of the listed companies on the UAE financial markets during the period 2010–2019
Summary
Over the last two decades, several researches have examined the extent of the non-financial disclosure about the environmental, social, and governance information as well as its potential impacts on the companies. The ESG analysis is becoming even more important in these challenging times of COVID-19 as it reflects how the companies should improve their non-financial reports In this context of uncertainty, the quality and transparency of the information disclosed are vital keys that will boost the trust of the different stockholders and stakeholders. The UAE has developed legislation for the environmental protection (Federal Law Number 24 of 1999), as well as created many bodies such as: Emirates Green Building Council (2006); Dubai Supreme Council of Energy (2009); Dubai Carbon Centre of Excellence (2011); Dubai Sustainability Council (2015).
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