Institutional Investors, Information Disclosure Quality And Cost Of Equity Capital

As an important bridge for investors and the public to know enterprises, enterprises’information disclosure is a vital factor influencing the efficiency of the capital market. The authentic, comprehensive, accurate and timely information disclosure could not only guide the capital market’s resource allocation positively and effectively, but also play a significant role to maintain the market order and protect the interests of stakeholders.As an important economic consequence of information disclosure, the information disclosure quality’s influence on the cost of equity capital becomes a hot issue for international capital market research and draws great attention from both theoretical and practical circles. And most of the related studies show that improvement of information disclosure quality is positively and effectively helpful to reduce the cost of equity capital.China’s institutional investors have entered a fast development period since2006, and with its increasing of the number, expansion of the scale and improvement of the overall quality, the public have got a more in-depth research and understanding of its function in corporate governance and maintaining of investors rights. As the investor who has relatively comprehensive and accurate information in the capital market, the institutional investor’s interpretation of enterprise’s private information could be reflected to some extent in the stock price of listed companies, thus improve the information content of stock price and then improve efficiency of capital market. And according to most of the relevant foreign studies, the existence of institutional investors and the information competition among them could weaken the information disclosure quality’s influence on the cost of equity capital.At present, most of domestic scholars prefer to use the data from the main-board and SME board to do the research among information disclosure, institutional investors and cost of equity capital, and the use of GEM board data is relatively infrequent. Therefore, on the basis of reviewing the domestic and foreign literature, the thesis chooses the GEM board data in2012to do the relevant research. In addition, due to the small number of the GEM board companies, the thesis also joins the SME board data in2012to expand the research sample, in order to avoid the serious deviation of empirical results. What’s more, the thesis also adds a board control variable to refrain from the deviation caused by the board differences. Due to the existence of "Asymmetric Information Theory" in the research of information disclosure, the thesis chooses the PEG ratio model rather than the commonly used CAPM model, to calculate the enterprises’ cost of equity capital. After the calculation of the cost of equity capital, the thesis uses three simple multiple linear regression model to study the follow questions:(1) what kind of effect the enterprises’ information disclosure quality has on its cost of equity capital?(2) will the existence of institutional investors really weaken the influence that the enterprises’information disclosure quality has on its cost of equity capital?(3) will the information competition among institutional investors really weaken the influence that the enterprises’ information disclosure quality has on its cost of equity capital?The study found:(1) for middle and small-sized enterprises, the information disclosure quality is an important factor affecting its cost of equity capital, and there is a negative correlation between them, in other words, the higher information disclosure quality means the lower cost of equity capital;(2) for middle and small-sized enterprises, the existence of institutional investors won’t weaken the influence that the enterprises’ information disclosure quality has on its cost of equity capital, but strengthen the influence, that is, compared to enterprises without institutional investors, enterprises having institutional investors will get a greater reduction in its cost of equity capital with the same degree improvement of information disclosure quality;(3) for middle and small-sized enterprises, due to the immature development of institutional investors in China, the increasing of information competition among institutional investors won’t weaken the influence that the enterprises’ information disclosure quality has on its cost of equity capital.According to the study results, the thesis has the following policy implications:(1) due to the improvement of information disclosure quality is positively and effectively helpful to reduce the cost of equity capital, it is necessary to continue to strengthen the market supervision, perfect the rules and regulations for information disclosure, and built a scientific and reasonable evaluation system of enterprises information disclosure, to improve the enterprises information disclosure quality;(2) due to the existence of institutional investors will strengthen the influence that the enterprises’information disclosure quality has on its cost of equity capital, it is necessary to continue to strengthen the development and supervision of institutional investors;(3) according the empirical results in the thesis, the present information competition among institutional investors in China’s capital market is relatively low, so it is necessary to improve the overall quality of institutional investors and create a more competitive information environment while strengthening the institutional investors development, thereby promoting the information competition among institutional investors, so as to optimize the capital market’s resource allocation and improve the financing efficiency.