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Integrity atmosphere and the cost of equity: Evidence from China

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  • Chen, Yuyang
  • Zhu, Shuyi

Abstract

This study investigates how the integrity atmosphere in a firm's local area affects the firm's cost of equity. Using the Credit Demonstration City Construction program in China as a quasi-natural experiment, we find that firms headquartered in pilot cities enjoy lower equity financing costs following implementation of the program. The results can be attributed to improved information-disclosure quality, decreased agency costs, and better corporate social responsibility performance. Further analyses show that the reduction in the cost of equity is significant for firms whose monitoring environments are weak and those that operate in industries that depend heavily on equity financing.

Suggested Citation

  • Chen, Yuyang & Zhu, Shuyi, 2025. "Integrity atmosphere and the cost of equity: Evidence from China," Emerging Markets Review, Elsevier, vol. 68(C).
    • Handle: RePEc:eee:ememar:v:68:y:2025:i:c:s1566014125000901
    DOI: 10.1016/j.ememar.2025.101341
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    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G39 - Financial Economics - - Corporate Finance and Governance - - - Other

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