An Empirical Study On The Impact Of Information Transparency On The Cost Of Equity In China

Since the low quality of accounting information is considered to be one of the reasons that lead to financial scandal, accounting information has become the focus of attention. Now the Academia pays more attention to the transparency of information based on previous studies about transparency of accounting information. More transparency disclosure can reduce information asymmetry, decrease capital costs and improve market efficiency at the point of the economical consequences of transparency. In China, after more than ten year's development, we have established fundamental institution system based on disclosure in capital market, but the listed company's disclosure as the main body of information disclosure is not optimistic. We focus on how the information transparency impacts on the cost of equity. This paper examines the impact of information transparency on the cost of equity in China, which will provide some advice to perfect information disclosure mechanism.Based on the aspect of disclosure differences between companies issued A-shares and B-shares in China, this paper investigates the impact of information transparency on the cost of equity on the basis of information asymmetry. Firstly, the paper defines the concept of information transparency and introduces the method of measuring the cost of equity in empirical research. Secondly, this paper starts from the analysis of the economical consequences of transparency, considering the characteristics of China we find that the transparency of A-share firms is lower than that of B-share firms, which lead to the cost of equity of A-share firms higher. Thirdly, this paper tests the impact of transparency on the cost of equity with the sample of the Chinese listed companies in 2004 by empirical research. Finally, combing the conclusions and the problems which we found, this paper points out some policy proposals, including bettering the information disclosure system and improving the ability of accountant's professional judgment.