[Keywords:] corporate governance equity capital cost residual income model
I. Introduction
In modern joint-stock companies, there is information asymmetry between shareholders and managers, which leads to moral hazard and adverse selection. Effective corporate governance can reduce the moral hazard and agency risk caused by adverse selection, so the more perfect the corporate governance structure, the more attractive investors can hold the company's securities at low cost. This paper uses the residual income model to calculate the cost of equity capital of listed companies. In order to systematically and comprehensively describe the corporate governance characteristics of listed companies, this paper investigates the relationship between corporate governance and the cost of equity capital from three aspects: ownership structure, board characteristics and incentive mechanism.
Second, literature review
The traditional CAPM model holds that the cost of equity capital of a company is determined by the beta coefficient of the stock. However, the empirical study by Fama and French( 1997) found that the cost of equity capital obtained by CAPM model was extremely inaccurate. Gebhardt, dee and swanminathan(2003) used the linear regression model to make an empirical study, and the results showed that the differences in industry characteristics, P/B ratio, long-term growth rate forecast and analyst's profit forecast could better explain the differences in corporate equity financing costs.
Recently, a large number of literatures have studied the relationship between corporate governance and the cost of equity capital. Crossman and Hart respectively demonstrated the influence of governance factors, such as owner's right, the same share and the same right, on the degree of investor protection and the cost of corporate equity capital. Himmelberg et al. (2002) used this model to test the capital cost of American securities listed companies under the agency conflict between internal managers and external investors. Kevin(2003) studied the significant negative correlation between corporate governance factors and the cost of equity capital in East Asian securities markets.
There are also some researchers in China who have studied the cost of corporate equity financing. Ye Helu (2004) found that although the cost of equity capital is mainly determined by the beta coefficient of stocks, other variables such as debt ratio, enterprise scale and industry are also important influencing factors. Wang Wei and Jiang (2004) investigated the relationship between information disclosure and equity financing cost of listed companies in Shanghai. Kong Weicheng and Hong Xue (2005) tested the relationship between ownership structure, board characteristics and the cost of equity capital by using communication listed companies. Research shows that the governance factors of listed companies are not important factors affecting the cost of equity capital. Taking the listed companies in Shenzhen as samples, this paper investigates the relationship between corporate governance and equity financing cost of listed companies in China.
Third, research hypothesis.
This paper will mainly use the method of multiple regression analysis to study the relationship between corporate governance and equity financing cost of listed companies in China. Referring to the existing classical literature on corporate governance structure, we take the governance factors such as the proportion of state-owned shares, the concentration of shares (the proportion of the largest shareholder), the size of the board of directors and the proportion of independent directors, the salary level of executives, and the proportion of executives' shares as the variables of corporate governance structure. Based on the analysis of the relationship between governance structure and the cost of equity capital, we put forward the following assumptions:
Suppose 1: the shareholding ratio of the largest shareholder of a listed company is positively related to the cost of equity capital.
Hypothesis 2: The proportion of state-owned shares is positively related to the cost of equity capital of the company.
Hypothesis 3: The size of the board of directors and the proportion of independent directors are negatively related to the cost of equity capital of the company.
Hypothesis 4: The proportion of executives' shareholding and executive compensation are negatively correlated with the cost of equity capital of the company.
Fourth, empirical analysis.
1. Sample selection. This paper selects listed companies in Shenzhen from 2000 to 2004 as research samples, excluding ST companies and financial insurance companies, and uses panel data to investigate the relationship between ownership structure, board characteristics, incentive mechanism and cost of equity capital in corporate governance structure.
2. Definition of variables. (1) Explain the variable. The variable explained in this paper uses the residual income discount model to calculate the cost of equity capital. (2) Explain variables. The explanatory variables in this paper are ownership concentration (CONTL), state-owned shareholding ratio (GOV), board size (DIRE), independent director ratio (INDDIR), executive shareholding ratio (MANAG) and executive annual salary. (3) Control variables. The control variables in this paper include beta coefficient and company size.
Empirical results and discussion of verb (abbreviation of verb)
We use the following model to regress the data:
Among them, it represents the characteristic effect and random error term of the company. In the case of company characteristic effect, OLS estimation coefficient is biased, because it is unobservable and the regression elements and covariance are not 0. In order to eliminate the influence of unobservable company characteristics, the model can be a first-order difference. Through the differential model, it can be found that (1) the proportion of board of directors and independent directors is negatively correlated with the cost of equity capital, and both are at a significant level of 5%. This means that the cost of capital decreases with the increase of the board size, which is in line with our hypothesis. (2) The concentration of equity is positively related to the cost of equity capital at the significance level of 5%, which is also consistent with the hypothesis, but the impact is relatively small. (3) The results of state-owned shareholding ratio, executive shareholding ratio and executive annual salary are not significant, indicating that there is no strong correlation with the cost of equity capital.
Using the data of China 19 1 listed companies, this paper examines the influence of corporate governance factors on the cost of equity capital. The regression results show that after controlling the beta coefficient and company size, other corporate governance factors do not show obvious correlation except the characteristics of the board of directors, which means that this governance structure is not the main factor affecting the cost of equity capital.
References:
[1] leaves and land. Analysis of the factors affecting the cost of equity financing of listed companies in China. Managing the World, No.2, 2004.
[2] Wang Wei, Jiang: 2004, information disclosure, transparency and the cost of capital. Economic Research, Issue 7.
[3] Kong Weicheng and Hong Xue: An Empirical Study on Corporate Governance, Investor Protection and the Cost of Equity Capital, No.5, 2005.
[4] Himmelberg, Charles, R.Glenn Hubbard and Inessa Love, 2002, "Investor Protection, Ownership and Cost of Capital", Working papei, Columbia University.
[5] Gebhardt, W.R., C.M.C, Lee and B.Swaminathan, 200 1, "Towards the Implicit Cost of Capital", Journal of Accounting Research.