Corruption, Forward-Looking Disclosure and the Cost of Equity Capital Evidence From the Chinese Market

Exploring the pathways to optimize the cost of equity capital is critical for enhancing resource allocation efficiency in capital markets and strengthening investor confidence. However, corporate development is often constrained by adverse external environments. Using a sample of Chinese A-share listed firms from 2010 to 2022, this study examines how corruption influences the cost of equity capital and the moderating role of forward-looking information disclosure. The results show that corruption significantly increases firms’ cost of equity capital, while forward-looking disclosure helps mitigate this negative effect. However, such mitigating effects are only observed when disclosure is characterized by low textual similarity, high readability and a normal, positive managerial tone. The findings provide novel insights into how corruption in transition economies affects corporate financing decisions through informal channels and underscore the critical role of high-quality disclosure in countering the adverse impact of political corruption. The results suggest that in the context of China’s anti-corruption initiatives, simply requiring greater transparency from corporate agents may be insufficient to change managerial behavior. Equally important is the need to refine China’s disclosure regulations and improve accountability mechanisms, offering practical evidence for strengthening investor protection.