Social trust and the cost of equity

Abstract

Social trust is the result and reflection of repeated games between individuals. Is social trust capable of optimizing enterprises’ financing modes? The following results are obtained. (1) The greater the regional social trust level, the lower the cost of equity. (2) Social trust plays a larger role in lowering the cost of equity in state-owned enterprises and enterprises located in regions with strong rule of law. By improving accounting information quality, social trust can reduce investor information risk, thus lowering equity costs.