A Study On The Relationship Of Corporate Environmental Disclosure And The Cost Of Equity Capital

Based on the green security policies in China, this paper studies the relationship between environmental disclosure in annual reports and the cost of equity capital and the impact of green security policy on the relationship, using Chinese listed companies in heavy polluting industries for the years of 2006 to 2009 as research object. The research starts from analysis of the green security policies and review of the related research through normative research method. Then this paper examines the relationship between environmental disclosure and the cost of equity capital, using multivariate linear regression models and different samples (including total samples, two groups of subsamples with different effect of the policies, and two groups of subsamples under the supervision of central and local regulator). And finally, the paper draws the conclusions and gives some suggestions for regulators, firms and investors.The analysis shows that for the sample companies, the environmental disclosure can lower the cost of equity capital significantly. The policy of refinancing environmental supervision has a significant impact on the relationship between environmental disclosure and cost of equity capital, and the influence of its enforcement on the relationship is greater than the policy. The results suggest that the investors in Chinese capital market have been paying attention to corporate environmental performance and corporate risks caused by environmental problems, through environmental information disclosed by company in annual reports. The green security policies in China can incorporate firms' environmental risks into financial risks effectively, but the implementation effect of the policies is affected by the enforcement. The regulators should follow up with stricter enforcement to improve the effect of the policy.