Integrity Atmosphere and the Cost of Equity: Evidence from China
Description
We utilize Chinese A-share firms listed on the Shanghai and Shenzhen stock markets as our initial sample. Because the Credit Demonstration City Construction (CDCC) program was implemented in 2015 and 2016, we use a sample period of 2012-2019, which is three years before and after the implementations. We exclude firms in the financial industry, as their accounting standards differ from common industries. To avoid any effect of relocation, we exclude firms whose registered address changed during the study period. Observations with missing values of key variables are also excluded. To ensure that observed changes are attributed to the CDCC program rather than the sample composition, we require each firm included in the sample to have at least one observation both pre- and post-CDCC program implementation. These selection criteria yield a final sample of 14,219 observations, consisting of 2,169 unique firms. All data needed are obtained from the China Stock Market and Accounting Research (CSMAR) Database.