Financial Analyst Following, Environmental Information Disclosure And Cost Of Equity

According to the information risk theory, asymmetric information is the leading reason why the cost of equity has premium. As an important part of non-financial information, the environmental information disclosure has a significant effect on the degree of asymmetric information. With the capital market is developing in China, the financial analyst has become an important medium of information delivery between enterprise and investors. Therefore, financial analysts’ action will have influence on the performance of environmental information disclosure and take effect on the cost of equity. Based on the background of envrionemtal policy changes, the paper made a research of the mesomeric effect among financial analyst following, environmental information disclosure and the cost of equity in the consideration of endophytism.After reviewing the related literature of financial analyst following, environmental information disclosure and the cost of equity, the paper made a thereotical analysis and raised research hypothesis by using the organization legitimacy theory, the information risk theory and the impression management theory. Then from the empirical view, fistly, the paper used the difference in difference method to analyze the environmental information disclosure differences, and found that the environmental policy’s effect was more significant on the heavy polluted enterprise. After that, the paper used the least square method and two-stage regression respectively to analyze the relationship between analyst following and environmental information disclosure. By comparing the results before and after policy changes, the paper got the evidence that the environmental police was useful. Further more, in the view of different industries and policy changes, the paper analyzed the moderating effect of industry on analyst following with the regulating variable analysis method and the function differences in different types of environmental information. At last, after getting evidence that environmental information’s reduction effect on the cost of equity, the paper made an analysis of the mediation effect among analyst following, environmental information disclosure and the cost of equity. As a result, the paper found that analyst following and environmental information disclosure could reduce the cost of equity; analyst following could increase environmental information disclosure and had mediation effect on the cost of equity. The heavy polluting industry had moderating effect on analyst following. In the consideration of policy changes, the mediation and moderating effect are more significant after the policy changes. With a further analysis of different types of environmental information disclosure, the paper found the conclusion in heavy polluting enterprises was more significant under the “hard disclosure” and the one in nonpolluting enterprises was more significant under the “soft disclosure”. In the end of research, the paper raised advices on developing environmental law’s regulation, improving financial revolution, promoting analyst’s professionalism and making platform of information communication.Under the background of environmental policy changes, the paper explored the relationship between analyst following, environmental information disclosure and the cost of equity form the view of public pressure. In some ways, the paper extended research of enterprise’ environmental information disclosure and its economical result, giving an experiential evidence of analyst following’s mediation effect on the cost of equity and the usefulness of policy changes.