Social Capital And Corporate Cost Of Equity: A Theoretical And Empirical Study

The problem of corporate cost of equity is an evergreen topic no matter in the field of finance theory or finance practice. The research of calculation of corporate cost of equity and the analysis of its determinant factors will bring forth new ideas and have the function of guiding practice to both entrepreneurs and investors. The study of cost of capital right now has been focusing on the economic side and political side such as the security of systematic risk, the corporate fundamental conditions, and investor protection and so on. All those researches are established on the assumption of self-interest seeking; however, they ignore the social reality that economic action is embedded in structures of social relations. In fact, social relations affect both economic behavior and institutions. This thesis reviews some social capital theories proposed by different scholars and puts forward a new concept of social capital, which can be defined as resources embedded in a social structure that are accessed and/or mobilized in purposive action, and trust is required in this process because it simplifies the mechanism of transactions/exchanges. Based on this definition, two assumptions that corporation gains more trust will have lower cost of capital and higher public value are advanced. Moreover, those two assumptions are confirmed by empirical data come from china's listed-companies.This thesis includes six chapters as follows:Chapter 1: Introduction. The motivation and purpose of research discussed briefly in this chapter.Chapter 2: Literature Review. Three categories of social capital researches including social capital of community, entrepreneur, and enterprise reviewed in this chapter.Chapter 3: Introduction of social capital theory. After describing a few kind of social capital theory, a new definition presented. The impact of general trust on corporate public value and its cost of equity analyzed detailed.Chapter 4: Designing of the study. The collection of data and the building of model presented.Chapter 5: Result of empirical research and analysis. The descriptive statistics and regression result demonstrated.Chapter 6: Conclusion. Besides the limitation and future direction of this study, the summary and conclusions of this thesis provided.