Disclosure level, information asymmetry, cost of capital and capital structure

By employing one-way variance analysis, signed rank tests and multivariable regression method while using the data of subsample firms in Shenzhen Stock Exchange on 31-Dec-2010, this paper verifies that the disclosure level has a negative relation with the information asymmetry, while the information asymmetry has a positive relation with the cost of capital, and the cost of capital is negatively correlated to the capital structure. Using the multivariable regression and the robustness tests in the full-sample firms, some further results indicate that the cost of capital, the information asymmetry and the disclosure levels have significant effect on the variation of firms' leverage and the firm-level factors significantly affect capital structure. This means that the pecking order theory is not adaptable in China's security market where companies prefer financing through equity capital.