The Impact Of Chinese GEM Companies’ Cost Of Equity Capital On Corporate Performance

There are many imperfections in GEM market which is an emerging market in China.Most companies appear on the GEM market are small companies, they play an important rolein promoting economic development and scientific and technology innovation、optimizationof industrial structure and social employment. However there are a lot of severe survivalproblems they must face: Market competition is becoming more and more fierce, the negativeimpact of financial crisis, slow development of Domestic financial markets, resource andenvironmental constraints strengthen, so the development of GEM companies face the restrictof talented person、information、funds、technology.ec, the situation that GEM companies aredancing on the waves formed, the survival status of GEM companies shouldn’t be treatedoptimistic. The grasping of information about development status and problems existing ofGEM companies can help us do the research such as decreasing the cost of equity capital ofGEM companies, implementing policies which can help promoting the development of GEMcompanies. So combining with corporate governance structure and the GEM marketenvironment to study the impact of Chinese GEM companies’ cost of equity capital oncorporate performance, the analysis of decreasing the cost of equity capital and valid path toimprove corporate performance are very necessary and urgent.Around the impact of Chinese GEM companies’ cost of equity capital on corporateperformance, this article review the origin and development of equity capital、corporateperformance theory and the interrelation between them. On the basis of theoretical analysis,this article choose the companies appear on the GEM market as study objects, selecting thedata of2010-2012of these companies, according to rational estimation models to estimateand evaluate the cost of equity capital and corporate performance of the companies appear onthe GEM market. And on the basis of theoretical study and empirical assumptions, the modelof GEM companies’ cost of equity capital on corporate performance is established, empiricalvalidation is conducting to verify how the cost of equity capital influence on the corporateperformance. At the end, the conclusions are gutted that the relationship between the cost ofequity capital and ROE、ROA or TBQ is negative correlation, and the negative correlation isconspicuous. So the cost of equity capital can have a significant impact on corporateperformance, the decreasing of the cost of equity capital can improve corporate performance.On the basis of theoretical study and empirical study, this article propose five adjusting the risk to reduce the cost of the cost of equity capital; exploring financing channels,reducing financing costs; optimizing the shareholding structure; Improve the quality ofinformation disclosure to reduce the agency costs; Considering the relationship between thecost of equity capital and corporate performance.