The role of common institutional ownership is becoming increasingly significant in China’s capital market. However, it remains unclear whether common institutional ownership plays a synergistic or collusive role in China’s capital market. Therefore, the study examines the impact of common institutional ownership on the cost of equity capital within the specific context of China.
This study uses a sample of Chinese listed firms over the period 2007–2021. It mainly employs ordinary least squares regression to examine the relationship between common ownership and the cost of equity.
Common institutional ownership has a beneficial, synergistic and monitoring role in reducing a firm’s cost of equity capital in the Chinese emerging market. Lowering business risks, reducing information risk and mitigating agency conflicts play a significant role in mediating the relationship between common institutional ownership and the cost of equity capital. The inhibitory effect of common institutional ownership on the cost of equity is more pronounced for non-SOEs, firms without government support and firms with lower investor attention. The study sheds a positive insight into the ongoing debate regarding the actual effect role of common ownership.
This study offers valuable insights into the ongoing debate regarding the practical implications of common institutional ownership, while also enriching the research on the factors that influence the cost of equity capital for firms. The conclusions hold significant practical implications for companies, investors and regulators.
