The Influence Of The Information Disclosure On The Cost Of Capital

Information is crucial to the stability, development and perfection of the capitalmarkets. The capital market essentially is a market that fully reflects the information.Thanks to the guidance of the information, the capital flows to the listed companieswho need funds from the general investors, to realize the capital market’s most basicfinancing function. In theory, the cost of capital is the lowest expected return ofinvestors. The disclosure information of listed companies can greatly influence theinvestors’ investment, and then bring about many economic consequences. The cost ofequity capital is one of the most important economic consequences.Based on the theories of market microstructure and investor’s interpretation ofinformation, with investor’s rational expectations as a starting-point and given therelevance of information, this thesis tries to respectively study the effects on the costof capital by the quality of information release and the investor’s informationexplanatory capability from the two perspectives of perfect competition market andimperfect competition market, aiming to form a set of system theory about the qualityof information release and cost of capital.The present study finds that in perfect competition market, the cost of capital isonly co-related to the average information explanatory capability of investors. Inimperfect competition market, the equilibrium of the capital market is sole given bythe illiquidity and the information interpretation precision of individual investors. Allother things being equal, the illiquidity affects the cost of capital by the averageinformation explanatory capability of investors and the liquidity.