The Impact Of Corporate Transparency On Cost Of Equity Capital

In recent years, corporate transparancy catchs the public’s attention and its disclosure level isincreasingly required by investors. Facing the current stage where our stock markets stand in,most companies are forced to disclose their relative information for the purpose of meeting thestandards of public supervision, inspection of internal performance or issuing shares. Corporate’snon-standard disclosure happens frequently and leads to an overall lower transparancy level forlisted companies, which negatively effects the development of capital markets in China.This thesis conducts a detailed research on influences of our corporate transparancy andattempts to constuct a economic analysis framwork in order to represent that corporatetransparancy are decided both by internal incentive and external pressure. It hopes to show somepolicy implication for how to keep corparates’ long-run transparancy.From the perspective of economic benifites, greater transparancy is associated with a lowercost of equity capital, less information asymmetry and higher efficiency in capital markets.Foreigh studies on this sector were analyzed on the basis of market risks and expected cash flow.Different form foreigh mature capital markets, Chinese stock market is still on a primary stagewith special regularities. Therefore, this thesis narrows the study into camparing differentdisclosure levels in A Share Market and B Share Market and analyzing their different influenceson costs of equity capital.This thesis studies the effects of corporate transparancy on cost of equity capital, which is areasonable theoretical basis for further empirical tests. Combining the cost of equity capitalreached by residual income model GLS and listed companies’ disclosure level released byShenzhen Stock Market, this study measures general market risk, firm size, financial risks andprofit ability. It test the relation between corporate transparancy and cost of equity capital forsamples of Chinese listed companies in Shenzhen stock market from2006to2007. Consequently,it proposes some policy implications for perfecting relative regulations, measuring disclosurelevel and enhancing accountants’ professional judgement.