Research On The Effects Of The Financial Report Transparency On The Cost Of Equity Capital

Sufficient information liquidity of capital market is the foundation of the operation of capital market’s various functions, which can also further secure the continuous improving of the security market’s effectiveness. Information is the basis of decisions, however, due to the relatively late development of China’s security market compared with those economically developed countries and the unsound construction and implement of laws and regulations, the information asymmetry between listed companies and investors caused by Principal-agent problems has greatly affect the efficiency of the capital market. Financial report is the main part of information disclosure of listed companies and the major source for investors to understand companies’ business and evaluating their value. Therefore, to realize the protection of investors by ensuring that investors can fully grasp companies’ operating and financial dynamics timely, national regulators made specific requirement for companies’information disclosure. With the rise of the concept of investor protection, the word "transparency" is mentioned by more and more scholars. However, few domestic scholars deeply study the notation and the formation mechanism of financial report transparency, which lead to the research on the relationship between financial report transparency and cost of equity capital insufficiency.Therefore, studying from the start point of financial report transparency, this paper in-depth researches the connotation of financial report transparency, rationally analyzes the elements of financial report transparency, straightens out the influencing mechanism of financial report transparency on cost of equity capital, empirically testes the influence of compositions of financial reporting transparency on cost of equity capital, gives corresponding policy recommendations based on the above. I hope that this study can enrich related study both to the theoretical field and practical field.This paper combines methods of theoretical analysis and empirical research. Firstly, it analyzes the connotation and formation mechanism of financial report transparency form the point of investors" perspective, then measures it from three angles:the production of information, the disclosure of information and the transmission efficiency of information. On the basis of this, this article tries to analyze the influencing mechanism from the perspective of formation of transparency and information asymmetry. Next, based on the three elements analyzed above, this paper puts forward four series of hypothesis:whether the quality of surplus influence the cost of equity capital; whether the quality of information disclosure influence the cost of equity capital; whether the efficiency of information transmission influence the cost of equity capital; weather the three element together influence the cost of equity capital. At last, this paper conducts descriptive statistics and multivariate regression analysis using SPSS and EXCEL software. This study finds that all the elements of financial report transparency we analyzed are significantly negative correlation with cost of equity capital, which proves that the improving of all links of financial report transparency are important to the decrease of cost of equity capital.Major research contents of this essay are as follows:In the theoretical part, firstly, this paper in-depth researches the connotation of financial report transparency, and rationally defines the financial report transparency I studied on the basis of that. Then this paper compares the notion of financial report transparency with financial report quality and financial report disclosure and forms a framework of analyzing financial report transparency from the start point of its formation mechanism. Secondly, it clarifies the notion of cost of equity capital and its measurement methods. At last, it analyzes the influence mechanism between the two variables from the perspective of formation of transparency and information asymmetry.In the research design part, on the basis of theoretical analysis in analysis above, this section mainly contains hypotheses, sample selection, variable design and model construction around the theme of whether financial report transparency affecting the cost of equity capital.In the empirical research part, the main content includes the descriptive statistics of main variables and the validity and reliability test of self-built indicator "efficiency of Information Transmission". On the basis of that, I conduct the multivariate regression analysis of influences of all elements of financial report transparency on cost of equity capital separately and jointly. At the same, by chancing the measures method of main variables, I conduct a robustness test.Lastly, according to the empirical result, this essay draws several conclusions and based on the conclusions, this paper gives several reasonable and practicable suggestions.The innovation points of this thesis:(1)analyzing the formation of financial report transparency from the perspective of investor protection, reasonable defining the elements of financial report transparency, including the quality of financial report, the quality of information disclosure and the efficiency of information transmission.(2)analyzing the influencing mechanism between financial report transparency and cost of equity capital from the angle of financial report transparency formation mechanism and information asymmetry.(3)basing on reasonable analyzing on the financial report transparency formation, conducting separate and joint testing of all links of financial report transparency with cost of equity capital.