Information Disclosure, Corporate Governance And The Cost Of Capital

So called corporate governance, is some kind of distribution system of corporate control power and residual claim right. Now, there are a lot of researches that investigate the relation between firm transparency and the cost of equity capital when they look transparency as one of the corporate governance factors. However, there are at least two dimensions that are not yet explored in this body of research. The first issue is whether the results found in developed countries can be generalized to emerging markets. More specifically, does disclosure have the same effect in reducing the cost of equity capital in china? The answer to this question is not so obvious. The second issue that has not yet been explored is, besides disclosure, whether other corporate governance mechanisms can also reduce the cost of capital. This is an important issue, because the cost of capital is a more direct measure of a firm's financing costs than firm valuation and financing costs affect not only a firm's investment decisions, but also its external financing capability.In this paper, we survey the association between the cost of equity capital and corporate governance mechanisms based on efficiency. We examine the relation between the cost of equity capital and corporate governance mechanisms by using firm-level data of 516 public companies listed in the SSE before 2002 after building two theory models. The results suggest that although greater disclosure is associated with a lower cost of equity capital after controlling for firm size and financial risk, the negative correlation between the cost of equity capital and other governance mechanisms is not so obvious.