The Research Of The Influence Of Earnings Transparency On Cost Of Capital Of The China Listed Companies

The capital market is the place to meet the demand of the capital suppliers and demanders.The suppliers gain time value of the money and risk compensation.Meanwhile,the demanders obtain the liquid value of the money.In the process,the suppliers decide the rate of risk compensation according to the information provided by the the demanders.However,there will be some information asymmetry between investors and financiers,leading unreasonable priced risk which will affect the cost of capital.Among the information provided by listed companies,the investors concern the earnings most.According to the clean surplus theory,if the earnings of listed company reflect its real economic value of its equity,the investor can set the stock a reasonable price based on the earnings information.Therefore,this paper will study the earnings to obtain the transparency of China's capital market.Based on a sample of all A-share listed companies from 1999 to 2015,this paper studies the relationship between earnings transparency and cost of capital.In this paper,we use the method proposed by Barth et al which use two-step regression on the earnings-return model,and constructed the transparency by the two R~2 obtained from the regression.we use the Fama-French three factor model to calculate the expected cost of equity capital,use the interest expense to calculate the cost of debt capital.This paper constructs five regression models,including earnings transparency and the next abnormal return rate,earnings transparency and the cost of equity capital,the earnings transparency and the next abnormal debt capital cost,earnings transparency and the cost of debt capital and earnings transparency on the two kinds of capital.We use pool regression and Fama-Macbeth regression to test the five model.We ues the Endog enous Switching Model to test the difference in effects of earnings transparency on Debt Capital Costs and Equity Capital Costs.We find that earnings transparency and next excess rate of return is significantly negatively correlated with the earnings transpar ency,cost of equity capital is significantly negatively correlated,and the next abnormal debt cost is significantly negatively correlated with the earnings transparency,cost of debt is significantly negatively related to earnings transparency.The effect of earnings transparency on the cost of equity capital is stronger than the influence on the debt cost of capital.We conclude that :(1)By improving its own earnings transparency,the listed companies can reduce its own cost of capital;(2)the listed companies who usually use stock financing should pay attention to its earnings transparency;(3)earnings transparency will affect the cost of equity capital factors except Fama-French factors.