The Effect Of Margin Trading On Equity Cost

In the background of margin trading launching.this paper applies the sample of COMed company from 2007 to 2014 in A share market to do research. The paper builds models and empirically tests the effects of margin trading on equity cost as well as considering some conditions where there are different property rights, internal control and institutions investors participation.The paper has some findings:After a company becomes a underlying stock of margin trading, it will shoulder lower equity cost. Besides.this function can be only found in State-owned enterprises than in private companies. Furthermore.when internal control quality is to be considered, the positive function of margin trading will be offset by its high quality of the internal control.That is to say, the function can only be found in the company who has lower internal control. In addition, this paper finds that a company will get a lower equity cost when it has more institution investors since margin tradings are mostly implemented by them and as the shareholders they can know more about the company and supervise the managers.These results indicate that margin trading system does play a certain positive role:it can lower the company’s equity capital cost.At last, this paper also finds that margin trading system can inhibit management opportunism so thar investors can get high quality of accounting information. After some tests the quality of accounting information plays a mediating role when margin trading system reduces the cost of equity capital.Innovation of this paper is examining the effects of margin trading from the point of cost of equity capital and finding that margin trading system can reduce the cost of equity capital, enriching the existing literature on the studies of the effect of margin trading, providing new of experience evidences about what economic consequences margin tarding will bring.Meanwhile,the paper tests the effect of the different property nature.internal control quality and the participation degree of institutions investors.helping us better understand the effect of margin trading, providing some references for related sector to deepen financial reform as well as companies to improve financing problem.