A Study On The Relationship Of Environmental Disclosure Quality And The Cost Of Equity Capital

Catastrophic environmental pollution accidents mainly caused by listed companies have occurred frequently in recent years.And the frequency of occurrency has been continually increacing.According to a report of the Environment Ministry of China,14serious environmental pollution accidents were caused by listed companies in2010,and the number went up to41in2011, and6tremendous environmental pollution accidents happened only in the first quarter of2012.Those pollution accidents have caused serious damages to the environment as well as the stock prices and financial performance of those polluting companies.As a result,stock investors have to face the higher investment risk.Therefore the demand for the environmental information of listed companies is growing continually.At the same time, regulatory policies on listed companies’ environmental management are becoming stricter and stricter.In this case, environmental disclosure,by which listed companies send their environmental information to investors is becoming more and more important.However,in fact,the listed companies do badly in environmetal disclosure.Hence,it is necessary to study the economic outcomes of environmetal disclosure so as to improve the undesirable condition of the disclosure of environmental information.One of the significant economic outcomes of information disclosure is the cost of equity capital.Numbers of researches have found that better information disclosure will surely reduce the cost of equity capital.But those researches mainly focused on disclosure of accounting information.When it comes to environmental disclosure, things are still the same?Will the improvement of environmental disclosure reduce the cost of equity of native listed companies?And if the environmental information is divided into financial part and non-financial part,what will happen?Our ultimate purpose is to make clear the relationship of environmental disclosure quality and the cost of equity capital so as to figure out whether the disclosure of environmental information in our country has made a big difference when the stock investors estimate the investment risk or make their decisions,and to make out the difference of investors’degree of attention on financial environmental information and non-financial environmental information.In order to solve the proposed problems,we have presented a concrete solution,which is divided into six chapters.Chapter one:introduction. This chapter dealt with the overview of research background and proposed the core problems to be discussed in this context.Chapter two:literature review.This chapter gave a summary of the literature research at home and abroad and then gave an objective comment on those documents.Chapter three:theoretical analysis. This chapter analysed the system backgroud as well as the theoretical bases,which consists of the Efficient Capital Market Hypothesis, the Stakeholder Theory,the Information Asymmetry Theory and the Signalling Theorie.Chapter four:empirical study design.This chapter dealt with the proposal of assumptions,foundation of empirical model and the selection of research sample.Chapter five:empirical test and results. The main contents of this chapter are descriptive statistical analysis, correlation analysis,multicollinearity test and multiple regression analysis. We chose the OJN model (Ohlson and Juettner-Nauroth,2005) to estimate the cost of equity captial,and used the content analysis to measure the quality of environmental disclosure.This method has been commonly used by scholars like Tang Yali (2006) to estimate the environmental disclosure level.Chapter six:conclusions.This chapter consists of the major conclusions, possible solutions and the disadvantages of this paper.The major conclusions of this paper are:The improvement of environmental disclosure quality will dramatically reduce the cost of equity capital of listed companies from heavily polluting industries.And investors focus far more on accounting information in environmental disclosure.That is,Chinese investors’ decision-makings have been largely affected by corporates’environmental disclosure behavior,especially the disclosure of accounting information in the environmental disclosure. The possible contributions of this paper are:Firstly,we have given a pretty comprehensive definition to the quality of environmental disclosure;and then we have improved the empirical model by introducing three corporate governance variables into the model;Finally,this paper has enriched the empirical study of relationshiop of firms’cost of equity capital and their environmental disclosure behaviors.