The Cost Of Equity Capital Of Listing Corporation

The cost of capital is an important concept of corporate finance, which is closely related to the company’s value. Study of issues related to the cost of capital has become the focus of attention of scholars at home and abroad. Existing research mainly includes the relationship between equity structure, management compensation incentive, investors legal protection, information disclosure and any other corporate governance factors with the cost of equity financing. Institutional investors, independent of the controlling shareholders, is an important external governance subject in the contemporary capital market, and it can optimize the ownership structure of listing Corporation and improve the level of corporate governance. Domestic institutional investors, despite a late start, have a well development since 2000, and finally become a institutional investment community which based on the securities investment fund. With the development of financial market, institutional investors gradually participate in its holdings of listed companies’ corporate governance activities, and reduce the company’s cost of equity capital by improving the corporate governance of listed companies. In this paper, after finishing the existing literature, we found that the domestic research on the relationship between institutional investors and corporate cost of equity financing is less, and focuses on to institutional investors as a whole behavior impact on listed companies and capital market, with little consideration investment institutions of heterogeneity. So we use a total of seven years of 7931 listed companies’annual data sample from 2009 to 2015, and divided it into three parts to study the influence of institutional investors on equity financing costs. After analyzing the overall impact, we consider the influence from different nature or different behavior of institutional investors.Overall, with institutional investors of listed companies compared with no institutional investors holding company equity financing cost is lower. At the same time, the shareholding ratio and the cost of equity financing presented negative correlation, which in a certain extent said that domestic institutional investors have a positive role in obvious shareholders. After classification of institutional investors in accordance with their nature discovery, we find that securities investment funds,as the most important and the most mature institutional investors, increase its stake will lead to the decline in the cost of equity financing; QFII as the main foreign investors, also played a same role; securities companies, insurance companies and pension funds influence on the cost of equity financing of listed companies is not significant, this situation may be due to their small size and less development. Finally, this paper classified the institutional investors according to their investment behavior, and found that the steady return of long-term stock ownership to the stable returns as the characteristics of the robust institutional investors in the capital market has played a more positive role. The specific performance is that listing Corporation with robust institutional investors shareholding have a less equity financing costs, compared to the transaction based institutional investors.The research findings of this paper have the following policy implications:first, the development and growth of institutional investors have a positive effect on China’s securities market. At the same time because of the domestic institutional investors development is very uneven. Therefore, it is necessary in professional securities investment funds at the same time to enhance and promote the development of other types of institutional investors, making the institutional investors more diverse. Second, guide investment institutions to establish long-term holdings of the concept and the healthy development of the institutional investors, reduce market volatility, and reduce the listed company’s share price fluctuations, reduce the cost of equity financing, listed companies and the healthy development of the creation of favorable conditions. Third, this study also found that state-owned listed company background of its high cost of equity financing, and we should give full play to the shareholders of the positive effects and improve the operating efficiency of state-owned enterprises.