Uncertainty, Corporate Governance and Investor Protection

Abstract

The cost of equity capital is the expected rate of return that investors provide equity capital to listed companies, it reflect the protection degree of corporate governance mechanisms to the interests of investors. The more effective corporate governance mechanism is, the lower cost of equity capital is. As a factor of influencing corporate operation as well as governance, uncertainty will change such relationship. In perspective of board monitoring, comparing the results of multiple regression with panel data regression, this paper confirm that the uncertainty is positive correlation to the cost of equity capital, the board monitoring is negative correlation to the latter. More importantly, the relationship between the board monitoring and the cost of equity capital will become less significant when the uncertainty the company facing is increasing, which means that the uncertainty will weaken governance efficiency.