ABSTRACT The capacity of a firm to deliver high‐quality products is shaped by its cost of capital. Guided by signaling theory, this study examines the influence of the cost of capital on product responsibility, while also assessing the moderating roles of board gender diversity, ESG controversies, and institutional ownership. The analysis draws on data from 227 firms listed on the Frankfurt Stock Exchange between 2002 and 2023, sourced from Thomson Reuters Eikon DataStream and selected through purposive sampling. Methodologically, the study employs the Augmented Mean Group (AMG) estimator, Feasible Generalized Least Squares (FGLS), and the two‐step Generalized Method of Moments (GMM) to test the hypothesized relationships. Results indicate that the cost of capital, proxied by the Weighted Average Cost of Capital (WACC), exerts a negative and statistically significant effect on product responsibility. Moreover, board gender diversity, ESG controversies, and institutional ownership significantly strengthen the relationship between WACC and product responsibility. These findings underscore the need for managers to integrate cost of capital considerations with the ethical and quality standards of their products. Such integration is essential for sustaining stakeholder trust, enhancing long‐term competitiveness, and safeguarding corporate reputation, particularly under financial constraints.
Arhinful et al. (Sun,) studied this question.
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