Institutional ownership and cost of equity of Chinese firms

Publication Type

Journal Article

Publication Date

2-2026

Abstract

Purpose – The purpose of this paper is to investigate the role of institutional investors in the cost of equity for Chinese firms, especially state-owned enterprises (SOEs). Design/methodology/approach – By using data from Chinese firms with a unique state ownership structure, we provide empirical evidence on whether institutional investors can help reduce the cost of equity for SOEs and non-SOEs, respectively, and if so, identify the underlying channels. Findings – We find that an increase in the shareholdings of institutions, especially independent institutions, can lead to a reduction in the cost of equity. This effect is particularly prominent in SOEs compared to non-SOEs. Moreover, institutional investors promote corporate social responsibility activities and innovation activities of invested firms, thereby reducing the cost of equity. Originality/value – This paper contributes to a comprehensive understanding of the effects of institutional shareholdings with heterogeneity on the cost of equity and their influential mechanisms in the process of mixed ownership reform.

Keywords

Corporate social responsibility; Cost of equity; G12; G32; G34; Innovation; Institutional investors; State-owned enterprises

Discipline

Asian Studies | Business Law, Public Responsibility, and Ethics | Finance and Financial Management

Publication

China Finance Review International

Volume

16

Issue

1

First Page

97

Last Page

124

ISSN

2044-1398

Identifier

10.1108/CFRI-01-2024-0003

Publisher

Emerald

Additional URL

https://doi.org/10.1108/CFRI-01-2024-0003

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