Institutional Investors Heterogeneity, Accounting Conservatism and the Cost of Equity: Evidence from China's Listed Firms

Abstract

Abstract:

In this paper, we use the sample data of Shanghai and Shenzhen A-share listed companies between 2007 and 2012 to explore the relationship between accounting conservatism and the cost of equity on the basis of the perspective of institutional investors heterogeneity. Empirical evidence shows that accounting conservatism has a significant negative effect on the cost of equity, and this also illustrates that the prudent financial information helps to reduce the cost of equity. Further analysis shows that, compared with unstable institutional investors, the stable institutional investors enhance the negative relationship between accounting conservatism and the cost of equity. The findings of this paper also help to provide an important reference for regulatory agencies to make policies for developing institutional investors.

Key words: the stable institutional investor, the unstable institutional investor, accounting conservatism, the cost of equity

Li Zhengguang, Cao Feng, Zhao Xibo, Dong Jingyu. Institutional Investors Heterogeneity, Accounting Conservatism and the Cost of Equity: Evidence from China's Listed Firms[J]. , 2016, 28(7): 42-52.

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