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Management integrity and the cost of equity capital: Evidence from Chinese listed firms

Author

Listed:
  • Yang, Mo
  • Yue, Sishi
  • Dong, Dayong
  • Cao, Jiawei

Abstract

This paper empirically investigates the relationship between management integrity, as assessed using textual analysis and machine learning techniques based on the Upper Echelons Theory and Trust Theory from social psychology, and the cost of equity capital. The findings demonstrate that the integrity-related language disclosed in the management discussion and analysis (MD&A) reflects the internal ethical standards of managers, and is negatively associated with the cost of equity capital. Corporate governance and information asymmetry serve as channels through which management integrity influences capital costs, respectively. Further analysis identifies the negative correlation between management integrity and capital costs is particularly noticeable in firms with a non-state-owned nature or a robust regional legal system. Additionally, management integrity exhibits a positive association with the company’s future value. Briefly, this study contributes to existing literature on managerial personal characteristics, and provides practical recommendations for talent management at the executive level in enterprises.

Suggested Citation

  • Yang, Mo & Yue, Sishi & Dong, Dayong & Cao, Jiawei, 2025. "Management integrity and the cost of equity capital: Evidence from Chinese listed firms," Research in International Business and Finance, Elsevier, vol. 77(PA).
    • Handle: RePEc:eee:riibaf:v:77:y:2025:i:pa:s0275531925001916
    DOI: 10.1016/j.ribaf.2025.102935
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    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M10 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - General

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