Analysis Of The Impact Of Product Market Competition On The Cost Of Equity Capital

The cost of equity capital is basic concepts of capital markets and corporate finance theory, and denotes the yield expectations which stock investors obtain from the listed company. In micro-enterprises, the cost of equity capital affects the development of the company’s financial policy. In macro capital markets, it affects the liquidity of capital and the efficiency of resource allocation on the market.In transitional economies of China, the state of competition in the market is different from the mature markets of Western countries, it is very meaningful and valuable to do the research of the relationship between product market competition and equity capital markets. Firstly, it is theoretical significance that promoting academic research of pricing on product market competition in financial markets. Secondly, it is practical significance that the research can provide policy recommendations for Chinese economic reforms.We choese the data of Chinese listed companies during 2002 to 2013 year as samples to explore the relationship between product market competition and the cost of equity capital, and the analysis shows that product market competition can promote technological innovation, productivity, executive incentive effect, corporate governance, etc.And improve the company’s profitability, reduce operating risk and financial risk, affect investor risk expectations. Furthermore, we add the variable of macro environment factors, such as private economic development, government intervention reduction, the company tax burden reduction, etc., and study how the factors would affect the relation between competition and the cost of equity capital.The empirical results show that:(1)The companies, which have fierce market competition, tends to have cost of equity capital.(2)Through adding Chinese institutional factors, we find that the development of the private economy, the weakening of the government intervention will strengthen the negative relation between competition and the cost of equity capital.