Director Network Relationship And Cost Of Equity Capital

China’s ownership discrimination,mismatch of financial resources,prominent contradiction between supply and demand and other phenomena have existed for a long time,and the problems of difficult and expensive financing of the real economy have become more and more serious.With the gradual advancement of the reform of stock issuance registration system and the gradual rise of OTC markets such as the new third board,regional equity trading,over-the-counter trading of securities companies and local financial asset exchanges,equity financing has become an increasingly important financing channel for Chinese enterprises,but the cost of equity capital has always been significantly high.Steadily reducing and maintaining the cost of equity capital within a reasonable range is not only the policy guidance to promote the comprehensive deepening reform of the capital market,but also the fundamental requirement to promote the sustained and high-quality development of the real economy.For a long time,academic circles have carried out in-depth exploration on the influencing factors of cost of equity capital,but in view of the extreme complexity of cost of equity capital,‘‘who affects cost of equity capital’’ has always been a controversial topic.Traditional research focuses on the impact of formal system on the cost of equity capital,but ignores the problem of“low socialization” in the mainstream economic theory.The rational economic behavior of any actor is a comprehensive trade-off and optimization choice made in the process of continuous interaction with many social relations.It is bound to be imperceptibly affected by social attributes such as human sophistication and relationship identity in the social network.China is transitioning from a hierarchical society to a network society.Modern enterprises have built a widely distributed and hierarchical network relationship in the social structure.At the same time,the formal system of China’s capital market is not perfect,and the explicit contract is still incomplete.The social capital embedded in the social network can act as a supplementary mechanism for the defects of the formal system,and has increasingly become an effective means for enterprises to expand their living space and enhance their competitive advantage.Therefore,introducing social network relationship as an informal system to explore the influencing factors of cost of equity capital has special implication and practical value.As the most common and long-term embedded social network form of listed companies,director network relationship is an important medium for transmitting knowledge information,decision-making experience,business opportunities and scarce resources in the network system.It provides an information transmission path and resource-sharing platform for connecting companies,and can play a positive role in capital cost governance.At present,this research field has not been paid enough attention,and the influence effect and action mechanism between them have not been completely clear.From the three dimensions of director network location characteristics,director network structure characteristics and board team characteristics,this study systematically constructs a comprehensive action process of the internal mechanism of the director network relationship on the cost of equity capital.On the one hand,it tries to explain how the director network location affects the cost of equity capital and how it changes in the different situations of director network structure;On the other hand,it tries to explain what the transmission path through which the director network location affects the cost of equity capital,and how the strength of intermediary role changes under the different board team characteristics.Therefore,this study draws up three logical frameworks: First,the research on the total effect of the director network location on the cost of equity capital.Second,the research on the situational effect of the director network structure between the director network location and the cost of equity capital.Third,the research on the transmission path of corporate risk-taking in the process of the director network location affecting the cost of equity capital,and the research on the contingency mechanism of the board team characteristics changing the intermediary role strength of risk-taking.Such an innovative idea not only helps to open the“black box” of mutual cooperation and collaborative governance between the director network and the board team,but also helps to drive the social capital of interlocking directors to be substantially transformed into the strategic resources of board.This study selects A-share listed companies on China’s main board with director interlocks from 2009 to 2019 as a sample to empirically investigate the impact effect and action mechanism of director network relationship on the cost of equity capital.The main conclusions of this study are as follows: First,from 2009 to 2019,the director interlocks average proportion of main board A-share listed companies was 93.22%,and the director network relationship was densely distributed and showed an overall upward trend.The cost of equity capital is still high and has risen sharply in the past three years,which runs counter to the “cost reduction” task of financial supply side structural reform.Second,the director network location can reduce the cost of equity capital.The higher the director network centrality,the lower the cost of equity capital.In companies with low quality of information disclosure,as well as in areas with low financial transparency,investor protection level and marketization process,the director network location brings a stronger incremental effect and plays a more significant role in reducing the cost of equity capital.Third,the director network structure presents diversified situational effects between the director network location and the cost of equity capital.(1)The information transmission and decision-making role of directors with different job nature can be divided into strong and weak.The strong interlocks relationship of internal directors inhibits the role of director network location in reducing the cost of equity capital,and the weak interlocks relationship of external directors promotes the role of director network location in reducing the cost of equity capital.(2)The personal relationship between interlocking directors and controlling shareholders is different.Compared with the high director intimacy,the lower the director intimacy between interlocking directors and controlling shareholders,the greater the role of director network location in reducing the cost of equity capital.(3)The path distance in the information transmission chain between interlocking corporates shows a long-term gap.The shorter the director interlocks distance,the greater the role of director network location in reducing the cost of equity capital.In addition,there is a substitution effect between the internal situational factors of the director network structure and the formal information channels represented by media reports and analyst tracking.Fourth,the director network location reduces the cost of equity capital by improving the level of risk-taking,and corporate risk-taking plays a partial intermediary role in the process of the director network location affecting the cost of equity capital.Fifth,the board team characteristics have changed the intermediary role strength of corporate risk-taking,and through the transmission path of corporate risk-taking,a contingency mechanism has taken place under the influence of the board team characteristics.Furthermore,the board heterogeneities promote the reduction of cost of equity capital by further enhancing the intermediary role of risk-taking,and the board group faultlines inhibit the reduction of cost of equity capital by further weakening the intermediary role of risk-taking.From the theoretical perspective,this study broadens the research horizon of the cross integration of director network relationship and cost of equity capital;Deepens the research connotation of director network relationship and board collaborative governance based on the three dimensions of director network location characteristics,director network structure characteristics and board team characteristics;Brings the intimate relationship between interlocking directors and controlling shareholders into the research scope,and extends the research boundary of director network relationship;Implants the characteristic path length of small world network theory into the field of social network analysis,and opens the research perspective of “two-way pairing” between director network interlocking corporates.In terms of practical significance,the research conclusions can give countermeasures and suggestions for listed companies to improve the director selection and employment mechanism,optimize the director network relationship,integrate the board team configuration,and reduce the cost of equity capital;Provide reference for regulators to understand the connotation of director network,standardize the operation of interlocking directors and promote the construction of formal system;Bring empirical enlightenment for investors to understand the essence of risktaking,improve information interpretation ability and realize reasonable compensation requirements.