An Empirical Study On The Effect Of The Listed Companies' Disclosure Quality On The Cost Of Equity Capital In China

The effect of the disclosure quality on the cost of equity capital are an important issues in the research area of capital markets and financial accounting. The theory and empirical research abroad show that the improvement of the disclosure quality can reduce expected risk and enhance the liquidity of the stock, by reducing information asymmetry between managers and investors and information asymmetry between different investors, thereby reducing the cost of equity capital.Scholars in China also carry out a certain amount of research in this field, and most of the conclusion are that the disclosure quality of China's listed companies have a positive effect on the cost of equity capital. The Empirical Study of China's scholars have only use the listed company's data from Shanghai Stock Exchange and Shenzhen Stock Exchange main board as the study sample, and no scholars use the data from Shenzhen Stock Exchange SME board as the study samples. SME board have more strict disclosure regulations, then under these conditions, the study about the effect of the disclosure quality on the cost of equity capital in SME board will have the same result as the previous empirical study? Through the analysis of SME board, the purpose of this paper is to provide relevant policy proposals for investors and the development of SME board.Firstly, this article reviewed relevant literature about the effect of the disclosure quality on the cost of equity capital. Then analyze the mechanism of the effect of disclosure quality on the cost of equity capital from two angles, which is the stock liquidity and market risk, and we introduced the special system background of the China's stock market and the Shenzhen SME board.Empirical part of this article use the sample of listed companies in Shenzhen Stock Exchange SME Board from the year 2005 to 2007 to study the effect of disclosure quality on the cost of equity capital at the basis of previous studies. In this paper, PEG ratio method are used to estimate the cost of equity capital as the dependent variable, using the disclosure quality as the independent variables, and we use the appraisal rating of the disclosure quality released by the Shenzhen Stock Exchange as the indicators of the disclosure quality, selecting the leverage ratio, the company size, asset turnover rate, the book market ratio, profitability, market risk as control variables, to establish the model of the effect of disclosure quality on the cost of equity capital. Through multiple regression analysis, we found that in the Shenzhen SME board, improving the disclosure quality does not reduce the cost of equity capital. Through the analysis of whether improving the disclosure quality will enhance the stock liquidity and reduce the risk of the stock as the theoretical analysis, and further analyze whether investors concerned about the rating of disclosure, we found that improving the disclosure quality does not improve the stock liquidity and reduce the stock risks, and we also found that the reason is that the investors dose not concerned about the results of disclosure quality.Finally, this paper presents a number of policy proposals based on the above research: Shenzhen SME board should further improve the legal system of the market. Continuously strengthening the market supervision on listed companies in the SME boards , to create a "fair, just and open" investment and financing market. Efforts should be made to enhance investor education to change the investors from short-term speculation, blind investment to rational investment, value investment.