Financial development and the cost of equity capital: Evidence from China

Jeong-Bon Kim; Mary L.Z. Ma; Haiping Wang

doi:10.1016/j.cjar.2015.04.001

Financial development and the cost of equity capital : Evidence from China

Research output: Journal Publications and Reviews › RGC 22 - Publication in policy or professional journal

Overview

28 Scopus Citations

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Author(s)

Jeong-Bon Kim
Mary L.Z. Ma
Haiping Wang

Related Research Unit(s)

City University of Hong Kong

Detail(s)

Original language	English
Pages (from-to)	243-277
Journal / Publication	China Journal of Accounting Research
Volume	8
Issue number	4
Publication status	Published - 1 Dec 2015

Link(s)

DOI	DOI https://doi.org/10.1016/j.cjar.2015.04.001 Final Published version
	Check@CityULib
Attachment(s)	Documents 5459483.pdf Final Published version, 797 KB, PDF Publisher's Copyright Statement This full text is made available under CC-BY-NC-ND 4.0. https://creativecommons.org/licenses/by-nc-nd/4.0/
Link to Scopus	https://www.scopus.com/record/display.uri?eid=2-s2.0-84946471157&origin=recordpage
Permanent Link	https://scholars.cityu.edu.hk/en/publications/publication(e8b6ba9c-de47-44cf-bb25-3c525f7b9798).html

Abstract

This study examines the relation between province-level financial development and the cost of equity in China. Our main findings are that (1) stock market development reduces the cost of equity in general, but the effect diminishes significantly in state-owned enterprises (SOEs) and firms with high growth potential or innovation intensity and (2) banking development only marginally lowers the cost of equity, but the effect is stronger in non-SOEs. Further analysis reveals that stock market development substitutes for such institutional factors as accounting quality, law enforcement, stock market integration and the split-share structure reform in lowering the cost of equity. We also find that lack of banking competition and banking marketization and under-development of the non-state economy partially account for the weak effect of banking development on the cost of equity.