Capital Cost Of Listed Companies On The Impact Of The Equity Financial Restatements

Essentially, Capital Market is a comprehensive market full of information and capital.It is the financial statement, especially the annual report that combines invertors with thelisted company. The financial report is not only the core of enterprise informationdisclosure, but also an important source for investors to understand its operation andmanagement. Thus, the reliability of the report will influence the public company and otherstakeholders. However, in recent years, more and more companies release financialrestatements in a way of significant temporary announcement, which have draw wideattention of Domestic scholars. This paper selects the company with financial restatementof Annual Report in2009-2011as the research samples to analyze the cost of equity capitaleffects of financial restatements. And intend to test the following two questions:①Whether financial restatement will affect the company’s cost of equity capital or not?②Inwhich way will different types of financial restatements affect the cost of capital? Thispaper helps to make a more thorough understanding of financial restatement.Firstly, this paper reviews relevant literature about restatement and theoretical basis.Then analyze the way of the effect of restatement on the cost of equity capital from twoaspects, the market risk and the stock liquidity. Next, after introducing theexisting legal system of financial restatement, the paper presents the current situation ofrestatement in domestic market. The following part is the empirical study of financialrestatement and the cost of equity capital, using the samples of listed companies and theirpaired samples. In this paper, the OJN (Ohlson-Juettner) method is used to estimate thecost of capital as the dependent variable; financial restatements are listed as independentvariables. This paper selects beta, asset-liability ratio, the book market ratio, profitability,growth rate, asset turnover and the company size as control variables. After multipleregression analysis, we found the financial restatements significant raised the cost of equitycapital of listed companies, and different types of financial restatements influence the costof equity capital in dissimilar way. At last, this paper concludes several recommendations,emphasizes that the financial restatement behavior won’t be standard and health withoutthe joint efforts of corporate governance and external regulation.The possible innovation of this paper lies in, first, the paper analyze the influence offinancial restatements to the cost of equity capital, which will rich present research of consequences of financial restatements. Otherwise, this paper classify the financialrestatements with different standards in2009-2011, and analyze them one by one in details,intending to conclude detailed empirical data, which will make some contribution to theresearch field of financial restatements.