An Empirical Study On Ownership Concentration,Accounting Conservatism And Cost Of Equity Capital

Large proportion of state-owned shares and concentration of the internal equity on a small number of substantial shareholder characterize the current shareholding structure of most Chinese enterprises.The over-concentrated equity is likely to empower substantial shareholders to take the advantage of their domination status for personal gain,while sacrificing the interests of the small and medium shareholders in general.As a result,investors are bound to require higher capital returns,which increases the cost of equity financing.Enterprises are supposed to disclose unfavorable news in the production and operation process in the form of financial reports,so as to reduce the risk of investment and the expected return of the investor.The principle of conservatism requires enterprises to confirm the accounting losses in a timely manner and strictly calculate the accounting income.It is necessary to reduce the cost of equity capital,improving the efficiency of enterprises financing and promote the healthy and orderly development of capital market.This paper conducted both theoretical and empirical analyses to study the influence of conservatism level on the equity financing cost of Chinese enterprises.We used the data of the Shanghai and Shenzhen A Stock Markets from 2010 to 2012.This article removed the abnormal and not-obtained data,and ultimately get 3390 research samples.Based on the current situation of shareholding structure of most enterprises in China,the paper added the property right and the ownership concentration variable,we also discussed the influence of equity concentration on the relationship between accounting conservatism and equity capital cost of Chinese enterprises.At the same time,this paper analyzed the relationship between the accounting conservatism of non-financial enterprises and the cost of equity capital under the condition of different property rights.The results suggested that the equity financing costs reduced with the increase of a firm’s accounting conservatism.Lastly,highly concentrated corporate equity on the substantial shareholders indicated a higher level of equity financing cost and a weaker effect of accounting conservatism on the reduction of equity financing cost.The main contribution of this paper is to provide a clear empirical evidence for the relationship between equity concentration,accounting conservatism and the cost of equity capital.The empirical analysis has important practical significance on the choice and application of accounting policies and the reduction of equity capital cost.