| Summary: | 碩士 === 國立成功大學 === 財務金融研究所 === 103 === This paper is mainly a study of geographic diversification and information transparency on firm cost of equity capital. Our primary data are all from the DataStream database and the I/B/E/S database. After merging all the variables and deleting any abnormal values, we ultimately have 7,934 firm-year observations from 2002 to 2013 globally.
Our first regression results showed that geographic diversification will increase the cost of equity capital. This indicates that the benefits of diversified companies are less than the costs. It also reminds diversified firms to improve their managerial skills in order to benefit more. Next, we examine whether information transparency can reduce the cost of equity capital. The results show that the clients of Big 4 audit firms enjoy a reduction on cost of equity capital compared to the clients of non-Big 4 audit firms. The level of significance is not high enough, but at least it reveals this reduction trend. Then, we make further study on the Big 4 but not industry specialist and both Big 4 and industry specialist to see if there are any differences. To our surprise, clients of Big 4 but not industry specialist audit firms enjoy a significant reduction on the cost of equity while the reduction for clients of Big 4 and also industry specialist audit firms is not significant. The classification limits on industry specialists may have caused these results.
All in all, from our empirical results, a trend was found indicating that the clients of Big 4 audit firms enjoy a reduction in the cost of equity.
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