| Corporate finance model is an important aspect of the business system, equityfinancing plays an important role in the capital markets as the main mode of financing; It isalso the important means which the enterprises should take for its rapidly development.Reducing the cost of equity capital have importantly impact to the effectiveness of thecapital market and the optimal allocation of resources. Competition among enterprises inthe capital markets for financing is essentially the competition in the area of corporategovernance, good corporate governance characteristics may be easier to obtain a highreturn on investment, so that the cost of equity financing will be relatively lower andfinancing capacity also will become stronger. Therefore, how corporate governance affectsthe cost of equity capital, the impact is direct or indirect?In this paper, we select the appropriate factors through the review and summary ofliterature research about corporate governance and the cost of equity capital, and use thesample data of A-share listed on the Main Board of Shenzhen and Shanghai, which can testcommon relation between corporate governance and the cost of equity capital. We design ageneral a corporate governance Index to research deeply relationship between them, thenfurther studies the transmission mechanism of improvement in governances on cost ofequity earnings quality, whether played an intermediary role, that is, corporategovernance→earnings quality→equity cost of capital.In the thesis, we study the impact of corporate governance on the cost of equitycapital through a descriptive analysis of the sample data and using ordinary least squaresmethod. The empirical analysis indicates that, in some extent, equity balance degree, theproportion of independent directors and executives’ shareholding are significantly negativerelation with the cost of equity capital; And moreover, ownership concentration and themanagers’ salary are significantly positive relation with the cost of equity capital; However,the proportion of state-owned shares has not significantly correlation with companies’ costof equity. Corporate governance Index which is the index of comprehensive managementof the listed company level has significantly positive relation with the cost of equity capital,this indicates that the better corporate governance will significantly help to reduce the costof equity capital. In order to thoroughly analysis the relationship between corporate governance andcost of equity capital, we introduce he earnings quality variables as mediating variables.The results show that earnings quality is part of the mediating variables between corporategovernance and the cost of equity capital, this indicates corporate governance affect thecost of equity capital by some of the impact of earnings quality.To reduce the cost of equity capital, and thus enhance corporate value, we need toboth improve the corporate governance structure in order to improve the level ofcomprehensive management, and also need to improve the quality of earnings disclosure.Therefore, this paper puts forward policy recommendations about reforming governancemechanisms deeply and establishing a sound institutional environment to improve thequality of information of listed companies. |
