Research On The Impact Of Shareholding Of Institutional Investors On The Cost Of Equity

Equity financing is an important channel for China's public companies to raise capital,and the cost of equity is crucial for capital flow and resource allocation in the capital market.Therefore,how to reduce the cost of equity effectively is a problem that has to be settled urgently by companies,and it has also become the focus of academia.Under the background of the government's efforts to develop institutional investors,the influence of institutional investors on capital markets has become increasingly significant,and the impact on the cost of equity cannot be ignored.In addition,the equity structure reflects the company's risk commitment and the distribution of benefits,which may affect the institutional investor's role in the cost of equity.Therefore,it is necessary to study the three in the same framework.The public companies of Shanghai and Shenzhen A-shares from 2012 to 2016 were selected as samples by this paper.Testing the influence of institutional investors' shareholding on the cost of equity empirically is the first step.Furtherly,introduce equity structure characterized by equity concentration and balance degree,and study its impact on the relationship between institutional investors' shareholding and the cost of equity.Finally,make policy recommendations based on empirical analysis results.It can be concluded from this paper that:(1)In the capital market in China,the shareholding of institutional investors is negatively related to the cost of equity.Institutional investors have scale advantages,which can relieve information asymmetry and supervise the management and major shareholders.Therefore,it can reduce the cost of equity.(2)The degree of equity concentration will significantly weaken the negative correlation between the shareholding of institutional investors and the cost of equity.the higher the degree of equity concentration,the stronger the controlling power of the major shareholders,which resulting the power of institutional investors weaken and the effect of reducing the cost of equity less.(3)The assumption that the degree of equity balance will strengthen the negative correlation between institutional investors' shareholding and the cost of equity has not been confirmed.it may be due to the fact that the equity balance of China's public companies is generally low,so that it has not increased the enthusiasm and ability of institutional investors to participate in corporate governance.Consequently,it will have no significant effect on strengthening thereduction of equity costs for institutional investors.It can conclude that the government needs to further promote the development of institutional investors,and guide them to play a greater positive role in the capital market;the company should optimize the equity structure,so that institutional investors have greater enthusiasm and ability to participate in corporate governance,to reduce the cost of equity and get out of financing trouble.