Heterogeneous Institutional Investors and Cost of Capital

Abstract

Using samples of China-listed firms during 2005-2012, we analyzed the effects of institutional investors on the cost of capital in terms of whether institutional investors are to hold share, shareholding ratio and shareholding period with the method of ordinary least squares regression and fixed effect model under the perspective of investment behavior heterogeneity. The results show that the institutional investors with higher share proportion can reduce the cost of capital more effectively and improve the level of corporate governance of listed companies. Institutional investors with longer shareholding period have a more significant negative effect on the cost of capital.