Effect Of Disclosure Quality Of Listed Companies On The Cost Of Equity Capital

The information disclosure of the listed companies is the primary way for the investors, debtors, government, and other interested parties to get to know the companies, and is the important basis for their decision makings. Therefore, the quality and the quantity of the information disclosure are of direct effect on the effectiveness of the capital market,Shenzhen Stock Exchange commenced its information disclosure assessment of the therein listed companies in 2001 and has institutionalized the assessment up till now. After the information disclosure assessment regarding to the previous year, the results will be published on the Big Three Securities Newspapers and Websites which are appointed by the Stock Exchange Committee. Since 30 July,2004, by way of the platform of "Integrity files of the listed companies", SSE began to reveal the rating of the evaluation result of the information disclosed by the listed companies, which composed the basis of this thesis. Since the SSE has not started to reveal the evaluation results of all the Shenzhen listed companies in the Integrity Files of the Listed Companies until 2004, and the studies before had not given this issue a consideration, when the public didn't know the results of all the evaluation results, they might not have reacted upon this effectively. The institution of the evaluation, which the SSE has been enforced since 2001, has drawn a vast intention of the investors and the public. So the discussion whether the rating of the information disclosure will influence the cost of capital equity of the listed companies, which is whether the higher rated listed companies will have a lower cost of capital equity. If so, it will make the listed companies value the quality of the information disclosure more, and thus, let the interested parties know more about the companies.This thesis firstly looks back on the relative papers on the effect that the information disclosure quality casts upon the cost of equity capital, and analyzes the reasons for this influence of the information disclosure quality from both a stock liquidity perspective and a market risk perspective. The empirical part of the thesis uses the information disclosure assessment revealed by the SSE from 2006 to 2009 as a proxy variable. The primary assumption of the thesis is that the higher the quality of the information disclosure, the lower of the cost of equity capital. The method employed by this thesis is regression to inspect the relationship between the quality of the information disclosure and the cost of the equity capital. According to the results of the sample companies, which are "excellent", "good", "qualified" and "unqualified," three dummy variables are supposed, regressed by fiscal year. In the empirical part, the information disclosure quality is used as independent variable, and the information disclosure assessment revealed by the SSE is used as a proxy variable. The controllable variable is the natural logarithm of asset, BETA, ROA, asset-liability ratio and book value-market value ratio. With including the quality of the information disclosure and the controllable variables in the unified model and assessing it with the method of OLS, the influence that the quality of the information disclosure has on the cost of equity capital is inspected.The inspection of whether the information disclosure assessment of the listed companies revealed by the SSE has cast a positive influence on the cost of equity capital is also an inspection of that whether the assessments provide a positive signal for the companies and deliver favorable information, which helps to reduce the cost of the equity capital. This can in turn helps the companies to value more the quality of the information disclosure. And as such, investors and other external information users can get to know more about the companies, reaching a result of a win-win situation for the listed companies and their information users, which is the underlying purpose of this thesis.This thesis makes an annual regression analysis and a mixed regression analysis of the data from year 2006 to year 2009. Specifically, the result passes the significance test in 2006 and 2007; but in 2008 and 2009, because of the global financial crisis and other factors, the result is not as obvious, and does not pass the inspection. The overall economic situation is not optimistic, which affected investor sentiment and further analysis of individual companies. The calculated cost of equity capital data may not accurately reflect the quality of information disclosure. The quality of the economic situation may also affect the control variables of the market risk, asset-liability ratio and the book market -market value ratio. The result of the four years mixed data agrees with the assumption, and passes significance test.The data processing and modeling of the thesis has three differences. Firstly, when calculating the cost of capital equity, the thesis is not confined by the predicted data used by the analysts in the residual income discounted model, but uses the actual data if there is actual data and uses the predicted data by the analysts in the WIND data base if there is not. This is mainly due to:on one hand, some listed companies do not have the predicted data by the analysts, but to enlarge the sample, we use the actual data as a substitute when there is not any; on the other hand, because the predicted data are subjective though our security market is rapidly developing. To ensure using the 12 periods' data to calculate the cost of capital equity, we can only employ the predicted data by the analysts and the average level of the industry to ensure the result as accurate as possible. Secondly, considering that the information disclosure assessment is carried out in the next year, the thesis analyzes the data one-year lag, because the result of the assessment of 2006 is revealed in 2007, we used the result of the assessment of 2006 and the data of 2007 to analyze. Lastly, when analyzing the data from 2006 to 2009, this thesis inspect the mix cross-section data and the data set year dummies respectively, showing under both methods, the inspection is passed and thus enhancing the reliability of the conclusion.