Information Quality And The Cost Of Equity Capital

The influence of information quality on the cost of equity capital is a significant field in international research, and in China, disclosure is also be attached more and more importance. Based on the considering of companies, this paper analyses the relationship in a theoretical way from three points which are stock liquidity, market risk and expected cash flows. After confirming the concept, economic causes and evaluation standard of disclosure,this paper introduces Chinese actuality. It also explains the measurement of the cost of capital, information quality and the other factors in detail. Then it carries an empirical study using the independently pooled cross section analysis and multiple regression analysis with SZSE data dated from 2002 through 2005 to test the influence.Empirical research studies the influence of information quality on the cost of equity capital in three aspects, which are instant, lag and marginal influence. Learned from the study, information quality has a significant lag influence on the cost, past years'information quality is negatively related to the cost, but surprisingly there is a significant positive relation between current year'information quality and the cost. We also find an opposite influence to cost of equity capital during the process of information improving from marginal analyze. We sum up the causes of above questions in two points, one point is that the emphasis of disclosure importance stays at an inchoate stage, and the other is the particularity of securities business in China. The paper further studies the corresponding change of the relation caused by other factors, finding that the industries with more risk or monopoly, and the listed companies which are bigger, higher-finance-level, less share holding by the first shareholder, are more pleasure to disclose their information because they will gain more from the decline of cost than others. Generally speaking, we do think that good disclosure system will be propitious to development of the market, and companies will gain more and more from the enhancement of information quality.