Corporate Governance, Financial Reporting Quality, and the Cost of Capital: A Synthesis of Evidence from Developed and Emerging Markets

Abstract

The relationship between corporate governance, financial reporting quality and the cost of capital has generated a substantial body of empirical accounting and finance research over five decades, yet the evidence remains fragmented across theoretical traditions, measurement approaches and institutional settings. This paper presents an integrative review of 66 studies published between 1976 and 2023 in leading accounting, finance and management journals, synthesising what is known about how monitoring structures and disclosure credibility shape the risk premium demanded by providers of equity and debt capital. Adopting a structured narrative review methodology, the paper organises the literature into seven thematic clusters and evaluates the convergence and divergence of findings within each. Four principal conclusions emerge. First, the theoretical claim that information risk is priced remains contested: analytical models disagree over whether information asymmetry is diversifiable in large economies, and the corresponding empirical evidence on accruals quality as a priced risk factor does not survive alternative asset-pricing specifications. Second, the evidence is markedly more consistent in debt than in equity markets, where auditor credibility, internal control integrity and disclosure quality demonstrably influence bond yields, credit ratings and private loan covenant structures. Third, firm-level governance and country-level institutional protection operate as partial substitutes: the marginal valuation benefit of firm-level transparency is greatest precisely where legal enforcement is weakest, although this substitution appears to hold more strongly for equity than for debt. Fourth, the corpus displays a pronounced geographic imbalance, with emerging market evidence accounting for under a tenth of empirical studies and sub-Saharan African evidence almost absent. The paper concludes by specifying a research agenda addressing this deficit, the methodological treatment of endogeneity in governance research, and the implications of artificial-intelligence-enabled assurance for information risk.