Abstract
This paper examines the impact of financing constraint risk on the cost of equity capital, and finds that there is a significant positive correlation between the financing constraint risk and the cost of equity capital. The greater the financing constraint risk is, the greater the cost of equity capital is, and state-owned enterprises can mitigate the impact of financing constraint on the cost of equity capital. For companies that do not disclose the protection of shareholders’ equity in the annual report, their financing constraint risk has an impact on the cost of equity capital. The influence of cost is more significant.
Highlights
For China’s economic development, financing constraints have become one of the important bottlenecks restricting economic transformation and upgrading
This paper examines the impact of financing constraint risk on the cost of equity capital, and finds that there is a significant positive correlation between the financing constraint risk and the cost of equity capital
Whether SA index or KZ index is used as financing constraint, the impact of financing constraint on the cost of equity capital is positive and very significant, indicating that the cost of capital (COC) KZ SA Beta Turnover book to market ratio (BM) Size leverage coefficient (Lev) return on total assets (ROA) return on net assets (ROE) State EDummy
Summary
For China’s economic development, financing constraints have become one of the important bottlenecks restricting economic transformation and upgrading. The existing research mainly focuses on how the financing constraints affect the operation of Chinese enterprises and how to get rid of the financing constraints. In the estimation of ICC, the measurement of the cost of equity capital gets rid of the dependence on the fluctuation of stock price and the data of stock returns realized in the past, and has stronger explanatory power on the future returns. It can measure the financing constraint risk and capital formation more accurately than previous studies. The financing constraint risk of undisclosed enterprises still significantly affects the cost of equity capital
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