The Impact of Corporate Governance on the Cost of Equity Capital: The Moderating Role of National Culture

Purpose: This study investigates the influence of corporate governance on the cost of equity capital in Tunisian listed firms, with a particular emphasis on the moderating role of national culture. Design/Methodology/Approach: Using panel data from Tunisian listed firms over the period 2007–2016, we employ a multilevel empirical framework to examine the direct effect of corporate governance on the cost of equity capital and the moderating impact of national culture. The cost of equity capital is estimated using the Capital Asset Pricing Model (CAPM), while governance and institutional variables are constructed from firm-level and country-level indicators. Findings: The results reveal that corporate governance practices in Tunisia remain relatively weak and constrained. Furthermore, national culture exerts a detrimental moderating effect on the relationship between corporate governance and the cost of equity capital, weakening the expected governance-related reductions in equity financing costs. Practical Implications: These findings underscore the need for policymakers, regulators, and firms to strengthen corporate governance mechanisms while accounting for the broader cultural and institutional environment. Improving governance effectiveness, in tandem with institutional reforms sensitive to national cultural characteristics, may contribute to lowering the cost of equity capital for Tunisian listed firms. Originality/Value: This study contributes to the literature by integrating national culture into the corporate governance–cost of equity capital nexus within an emerging market context. By adopting a multilevel approach, it provides novel empirical evidence on how cultural and institutional factors shape the effectiveness of corporate governance in reducing equity financing costs in Tunisia.