Founding Family Control, Information Disclosure Quality And Equity Capital Cost

High-quality information disclosure could decrease the information asymmetry between corporation and investors and improve the transparency of information, then effectively decrease the equity capital cost. However, in our country many family firms do not want to disclosure their information because of institution and culture. They fear that the disclosure of information would bring them operation risk unnecessarily. Such as people describe listing that listing likes naking on the stage facing the crowd dancing, and this feeling makes some entrepreneurs who used to operate in a black-box frightened. And does this means the equity capital cost of founding family control firms are higher? With the launch of the GEM in China, the number of private listed companies is increasing rapidly, and the founding family firms of the GEM are hot, then how should we explain this phenomenon? Moreover, what is the relationship between founding family control and the equity capital cost? On the impact of the equity capital cost, what kind of relationship between founding family control and information disclosure quality is?This paper, using308samples of refinancing from2003to2007listed in Shanghai and Shenzhen from the CCER database, combining the method of normative research and empirical research, with the transaction-cost analysis tool, studies the influencing mechanism between founding family control and equity capital cost from two aspects. First, According to the definition of founding family control and the differences between agency cost and investment window, we divide the samples into founding family-controlled listed firms and other listed firms. Based on the confirmation that information disclosure quality and equity capital cost exists a significant negative correlation, we control the important variable of information disclosure quality and observe the relationship between founding family control and the cost of equity, capital; Secondly, on the aspect of considering the relationship between founding family control and information disclosure quality, the paper introduces the impact factor which is multiplied by founding family control and information disclosure quality to judge whether the relationship between founding family control and information disclosure quality is substitutive or complementary on the impact of the equity capital cost.This paper draws the following three conclusions. Firstly, information disclosure quality is significantly negative to the cost of equity capital, no matter what the firms is founding family-controlled firms or other listed firms. The better the information disclosure quality is, the lower the equity capital cost. And in the founding family firms the negative relationship is weaker than other firms. Secondly, founding family-controlled listed company has the vision of focusing on the reputation and committing to long-term operation, the behavior of frequent trading and asset-specific investment, all that make its transaction cost significantly lower than other corporations, and so does the equity capital cost. Finally, under the current environment, founding family control becomes the effective substitute of high-quality information disclosure on the influencing of equity capital cost. Founding family firms still have a lower equity capital cost even if its'information disclosure quality is not well. These shows the characteristics of founding family control play an alternative role to the information disclosure quality. In addition, we observe that in the founding family-controlled firms, the influencing of the disclosure of information is significantly reduced, which means the investors concern about the other characteristics of the founding family firms at the same time when making decision.The main contribution of this paper is that it divides the private enterprises into founding family-controlled firms and non-founding family-controlled firms. And according to the differences on the agency costs and investment window, we put the state-owned enterprises and non-founding family-control firms as a class of home. We find that the equity capital cost of the founding family-controlled firms is lower than that of the other listed firms. On the influencing of equity capital cost, the founding family control becomes the effective substitute of high-quality information disclosure quality. Finally, based on the transaction cost theory, this paper explains the empirical results from the perspective of uncertainty, transaction frequency and asset specificity.