Empirical Study On The Effect Of Environmental Information Disclosure On Cost Of Capital

In recent years, China has promulgated a series of "Green Securities" policies to promote listed companies of improving their environmental performance and quality of environmental information disclosure. These "Green Securities" policies could also guide investors in capital markets and other stakeholders to pay more attention about environmental performance of listed companies. Theoretically, improving quality of environmental disclosure could reduce the information asymmetry between managers and investors and the information asymmetry between investors themselves thereby reducing the investors’ predicted risk and improving the liquidity of the stock, thus could reduce the cost of capital of listed companies. The purpose of this article is trying to answer these questions:In recent China’s capital market, whether the increasing of disclosure level of environmental information is able to reduce the cost of capital? Whether the different disclosure carrier such as annual report and independent environmental report will make diverse influence on listed companies’ cost of capital?On the basis of the relevant theoretical analysis and the descriptive analysis on status of China’s environmental information disclosure, this article choose the heavily polluting industries in Shanghai A shares as sample, tests the relevance of environmental information disclosure and cost of equity capital using multiple linear regression model. First, using content analysis, referring relevant rules and norms and27core indicators about environmental information in Preparation of guidelines China Corporate Social Responsibility Report(CASS-CSR2.0), this article constructs a rating system to score the sample companies’ environmental information disclosure quality of annual report and independent environmental report. Secondly, on the basis of the comparison on the measurement model of cost of capital, this article chooses the Capital Asset Pricing Model (CAPM) to calculate the sample’s cost of capital. Third, this article tests the relationship between environmental information disclosures of listed companies and their cost of equity capital in two sample groups. The result of multiple regression analysis shows that environmental information disclosure level and the cost of capital are negatively correlated. Comparing to the annual report, environmental information disclosed in the independent environmental report shows greater impact on the cost of capital. At last, this article tries to put forward some concrete suggestions for environmental information disclosure of listed companies in China from angle of listed companies and regulatory authorities.