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Does the research done by the institutional investors affect the cost of equity capital?

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  • Saci, Fateh
  • Jasimuddin, Sajjad M.

Abstract

Based on the data from a Chinese capital market, this paper examines the relationship between institutional investor research, institutional investor heterogeneity and the company's equity capital cost. The paper reviews the extant literature from which it develops a model which is then tested empirically using the data from the Shenzhen Stock Exchange in the Chinese context. The paper reveals that institutional investor research can significantly reduce the company's cost of equity capital. That is, the greater the proportion of field research in the total investment activity, the lower the company's equity capital cost. Moreover, institutional investors can reduce the company's capital cost by conducting on-the-spot investigations, on-site visits, etc., intervening in corporate governance, improving the company's information disclosure level, and playing the role of external supervision.

Suggested Citation

  • Saci, Fateh & Jasimuddin, Sajjad M., 2021. "Does the research done by the institutional investors affect the cost of equity capital?," Finance Research Letters, Elsevier, vol. 41(C).
    • Handle: RePEc:eee:finlet:v:41:y:2021:i:c:s1544612320316482
    DOI: 10.1016/j.frl.2020.101834
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Zeng, Yongliang & Zhao, Xiangfang & Zhu, Yiwen, 2023. "Equity incentives and ESG performance: Evidence from China," Finance Research Letters, Elsevier, vol. 58(PC).
    2. Lai, Shaojie & Li, Xiaorong & Liu, Shiang & Wang, Qing Sophie, 2022. "Institutional investors’ site visits and corporate employment decision-making," Journal of Contemporary Accounting and Economics, Elsevier, vol. 18(3).
    3. Zhao, Ling & Huang, Hao, 2024. "Information disclosure by industry and the cost of equity: Evidence from a quasi-natural experiment in China," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 196-212.
    4. Xiao, Zhongyi & Chen, Haitao & Chen, Kang, 2023. "How does institutional investors' information acquisition inhibit share pledging? Evidence from China," International Review of Financial Analysis, Elsevier, vol. 89(C).
    5. Bo, Xinru & Fan, Xiaomin (Michelle) & Kong, Aiguo, 2023. "The dark side of political promotion incentives: Evidence from firm performance," Finance Research Letters, Elsevier, vol. 51(C).
    6. Cao, Jerry & Wang, Hanyang & Zhou, Sili, 2022. "Soft activism and corporate dividend policy: Evidence from institutional investors site visits," Journal of Corporate Finance, Elsevier, vol. 75(C).
    7. Wang, Yizhi & Lin, Yongjia & Fu, Xiaoqing & Chen, Songhe, 2023. "Institutional ownership heterogeneity and ESG performance: Evidence from China," Finance Research Letters, Elsevier, vol. 51(C).
    8. Guo, Borui & Huang, Xiaoxia, 2024. "Digital transformation tone signal and the cost of equity: Evidence from Chinese listed companies," Finance Research Letters, Elsevier, vol. 59(C).

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    More about this item

    Keywords

    Corporate governance; cost of equity capital; heterogeneity of institutional investor; Institutional investor research;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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