Influences Of Corporate Governance On The Cost Of Equity Capital-Theories And Evidences

The cost of equity capital is an important aspect of enterprises operation system. The reduction of the cost of equity capital is not only of great significance for the list companies, but also has an important effect on improving the efficiency of capital market and optimizing the resource allocation. The competition to obtain the financing among enterprises in the capital market is actually a competition on the corporate governance. Enterprises characterizing good corporate governance are easier to obtain the high return on investment, so as to make their equity financing costs relatively lower and their financing capacity stronger, then how does the corporate governance influence the cost of equity capital, the direct influence on the cost of equity capital or the indirect influence through other factors?In this paper, the data of all industries among the list companies from Shanghai Stock Exchange (SSE) and Shenzhen Stock Exchange (SZSE) from 2008 to 2013 are selected and 4338 company samples are finally obtained in order to study the governance structure characteristics of these list companies from SSE and SZSE of China:1. Whether the equity structure and the equity concentration have an effect on the enterprises’ cost of equity capital, and the degree of influence; 2. Whether the characteristic of the board of directors have an effect on the enterprises’ cost of equity capital, and the degree of influence; 3. Whether the executive compensation has an effect on the enterprises’cost of equity capital, and the degree of influence; 4. How the combination of the equity characteristics, the characteristic of the board of directors and the executive compensation influences the enterprises’cost of equity capital.In this paper, the empirical parts are mainly divided into two parts:first, the influences of the cost of equity capital of these list companies from SSE and SZSE is analyzed respectively through the equity characteristics, the characteristic of the board of directors and the executive compensation; secondly, the influences of the above-mentioned three aspects of corporate governance characteristics on the cost of equity capital of these list companies from SSE and SZSE are synthesized, and the state-owned holding list companies and the privately-owned holding list companies from SSE and SZSE are compared and analyzed.The main conclusions in this paper are as follows:1. The equity concentration of list companies of China is higher, but the share holding of major shareholders is of more positive governance role; 2. The equity structure of list companies of China is unreasonable, the excessive proportion of state-owned stocks has a negative influence on reducing enterprises’ cost of equity capital; 3. The peculiar non-tradable share phenomenon in China has been improved after the split share structure reform, but it still accounts for more proportion and has a serious impact on the cost of equity capital; 4. In the characteristic of the board of directors of list companies of China, the establishment of each committee has a more significant effect on the cost of equity capital; 5. In the list companies of China, the effective incentive mechanism for senior management hasn’t been formed.