Universal Journal of Accounting and Finance Vol. 7(3), pp. 67 - 75
DOI: 10.13189/ujaf.2019.070301
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Information Transparency, Debt and the Cost of Equity Capital: Evidence from China

Hui-Cheng Yu ¹, Bor-Yuan Tsai ², Beiling Ma ^3,*
1 School of Finance and Accounting, Fuzhou University of International Studies and Trade, China
² Department of Accounting Information, Aletheia University, Taiwan
³ School of Tourism Management, Hunan University of Technology and Business, China

ABSTRACT

This study adopted the signalling theory perspective to explore the effect of information transparency on the cost of equity capital among enterprises in China. Variables of information transparency and debt ratio were used to examine their influence on the cost of equity capital of enterprises in China between 2014 and 2015. The empirical results revealed that information transparency negatively affected the cost of equity capital, regardless of examining all observations simultaneously or examining the samples from 2014 and 2015 separately. However, the effect observed in 2014 was non-significant. In addition, debt positively moderated the effect of information transparency on the cost of equity capital. The results revealed that investors of the capital market paid attention to both financial and nonfinancial information disclosed by enterprises. This finding should be of great value to enterprise managers, supervisors, and decision-makers in financial or socioeconomic systems similar to that of China. Previous relevant studies have rarely explored emergent economies in socialist systems. The empirical results of this study facilitated reinforcing the research gap regarding how enterprises in socialist countries reduce their cost of equity capital amidst the economic development therein.

KEYWORDS
Information Transparency, Cost of Equity Capital, Signalling, China

Cite This Paper in IEEE or APA Citation Styles
(a). IEEE Format:
[1] Hui-Cheng Yu , Bor-Yuan Tsai , Beiling Ma , "Information Transparency, Debt and the Cost of Equity Capital: Evidence from China," Universal Journal of Accounting and Finance, Vol. 7, No. 3, pp. 67 - 75, 2019. DOI: 10.13189/ujaf.2019.070301.

(b). APA Format:
Hui-Cheng Yu , Bor-Yuan Tsai , Beiling Ma (2019). Information Transparency, Debt and the Cost of Equity Capital: Evidence from China. Universal Journal of Accounting and Finance, 7(3), 67 - 75. DOI: 10.13189/ujaf.2019.070301.