2005.9.7
Seminar Title: Cost of Equity and Its Determinants for Listed Companies in China
Time: 1:30pm-3:00am, Wednesday, September 7, 2005
Language: English
Speaker: Prof. Chun Chang, CEIBS

Abstract: We estimated the cost of tradable equity for Chinese listed companies by using an ex ante "residual income" approach developed by Ohlsen and Juettner-Nauroth (2003). We show that the costs of equity for most Chinese firms in our sample at the end of 2004 are comparable with those we see in the mature markets. The mean cost of equity for the sample of 415 firms is 12.6% and the media is 11.7%. In terms of the determinant of the cost of equity, we found that the unsystematic risk is a significant determinant, while the systematic risk measured by β is not a determinant. In addition, the percentage of non-tradable shares is another significant determinant: it raises the cost of tradable equity when the percentage is low and the lowers the cost of equity when it is high. This is consistent with the hypothesis that the existence of non-tradable shares exacerbates corporate governance problems and the hypothesis that tradable shareholders anticipated compensation from non-tradable shareholders.