The Impact of Sustainability Disclosure on Cost of Capital: The Role of Intellectual Capital as a Moderator

Abstract

This study investigates the impact of sustainability disclosure (measured by environmental disclosure, social disclosure and governance disclosure) on the cost of capital, proxied by cost of equity, cost of debt, and weighted average cost of capital (WACC), of listed manufacturing companies in Nigeria. It further explores the moderating role of intellectual capital within the agency and information asymmetry frameworks. Using a sample of 45 listed manufacturing firms over 2012–2025, the study employed descriptive statistics, correlation, and panel random effect regression analyses. Findings reveal reveals that environmental disclosure has negative but significant effect on WACC of Nigerian manufacturing firms. This is the same relationship between environmental disclosure and cost of equity of Nigerian manufacturing firms. This implies that an increase in environmental disclosure, other independent variables remain constant there is decreases WACC and cost of equity. On the other hand, environmental disclosure is significant and positive with cost of debt in the listed Nigerian manufacturing firms. Indicating that any increase in the environmental disclosure will lead to increase in cost of debt of the listed Nigerian manufacturing firms. After moderation, Intellectual capital demonstrated a significant moderating effect on the link between sustainability disclosure and cost of capital. The study concludes that sustainability disclosure meaningfully impacts financing costs of Nigerian manufacturing companies and that intellectual capital further shapes this relationship. It recommends that firms should prioritize robust waste management and environmental risk disclosures in reports to capitalize on cost reductions. Collaborate with regulators for training on disclosure standards to sustain these benefits. Engage auditors for robust verification and seek green bonds to diversify funding away from traditional debt. Companies should also assess their intellectual capital.