What is the impact of corporate governance on cost of capital?

Corporate governance significantly impacts a firm's cost of capital by influencing investor confidence and perceived risk. Strong governance practices, such as transparency, accountability, and effective board oversight, can reduce information asymmetry and lower the perceived risk associated with investing in a company. This, in turn, can lead to lower equity and debt costs, as investors and lenders are more willing to provide capital under favorable terms. Conversely, weak governance may elevate risk perceptions, resulting in a higher cost of capital.