Product market competition and the cost of equity capital: evidence from China

This study examines how product market competition affects the cost of equity capital in the incomplete competition and transitional economy setting in China, and reports that firms in more competitive industries have lower the cost of equity. We explain that technical innovation, production efficiency, external governance, and managerial incentives induced by increased competition reduce systematic economic uncertainty in China, and find their mediating effects on the competition cost of equity relation. We also find that better development of non-state economy, less government intervention, entrance to the World Trade Organization, and higher banking competition strengthen the competition cost of equity relation.