Information Disclosure And Cost Of Equity Capital In Emerging Markets: The Chinese Case

This paper analyzes on all listed companies except those among financial industry on A-share in Shenzhen stock market during 2010-2012, estimates the internal cost of equity capital of listed companies and use OJ model for reference, then measures the relationship between the quality of information disclosure and cost of equity capital for these listed companies. This paper is aimed to examine whether the negative correlations existed in the developed capital market such as USA between the quality of information disclosure and cost of equity capital exists in China emerging market. And this paper also talks about the effects on the relationship between the quality of information disclosure and cost of equity capital from factors like the nature of property rights, concentration of ownership and market’s attention.The tested results showed that the negative correlation between the quality of listed companies’information disclosure and cost of equity capital in China is very significant, especially for the mainboard listed stocks which have the highest negative correlation. It was because of the high level of acceptance and recognition for the quality of mainboard information disclosure so that the investors would take information disclosure into their investment consideration except for the specialization of the Growth Enterprise Market and Small and Medium-sized Enterprises Board. Meanwhile, though the non state-owned enterprises burden a higher cost of equity capital, the capital market is more sensitive for the improvement of quality information disclosure and then the reduction of risk premium from cost of equity capital is more obvious. Also the companies that have a lower level of ownership concentration and low attention from market are more sensitive to their quality of information disclosure. This research can assist companies to have a strong motivation to improve their quality of information disclosure and enhance the efficiency of capital market. The listed companies from different boards and different background can select the optimal level of information disclosure and minimum the cost of equity capital.