The Influence Of Ultimate Ownership Structure On Capital Cost

No matter in theory or in practice, capital cost is an eternal topic. Capital cost is the earliest study of the financial classic topic, and it is also a difficult problem which has not been solved by modern financial theory after half a century's development. Equity capital cost is the major difficulty in capital cost study, because it is subject to so many extremely complicated factors that no single measurement model can acquire the academic consensus. Since La Porta et al.'s(1999) groundbreaking research in ultimate ownership structure of company in the developed countries, the conflict of interest between the ultimate controlling shareholders and the outside investors caused by ultimate ownership structure gradually became a hot issue in academic research. So, whether the ultimate ownership structure would affect the company's capital cost, and what is its degree of impact? Whether the western equity capital cost calculation model can explain Chinese listed companies'capital cost? All these problems need further theoretical analysis and empirical research.Therefore, based on the literatures of scholars at home and abroad about the cost of capital, this thesis combs and summarizes the relevant theories. Also, this thesis adopts the cross-sectional data of 555 non-financial Chinese listed companies that listed in Shanghai and Shenzhen in 2005, and applies the OLS method to test the relation between the four characteristics variables of the ultimate ownership structure and the capital cost. The results of this thesis show that:(1) The cash flow right of the ultimate controller has significant negative correlation with capital cost; (2) The control right has significant positive correlation with capital cost; (3) The greater deviation between the ultimate control right and cash flow right is, the higher cost of capital of the company is; (4) There's no evidence that the characteristic of the ultimate controller have significant influence on capital cost. Finally, according to the empirical results and in combination with the special background of China, this thesis puts forward some relevant policy suggestions in order to improve corporate governance and to reduce the cost of capital.