In this study, we develop a firm valuation model, based on the works of Modigliani-Miller(1963) and Lee(2007, 2009), to test the influences of corporate governance level to the intrinsic values and also the costs of capital of the firm.

 

We classify the differences in corporate governance level by the corporate governance index published by CGS(Corporate Governance Service). And we take into account the legal regulations on the corporate governance system of the big listed companies, the holding companies and the big business groups to test the disclosure influences.

The empirical results of this study are summarized as follows:

First, we find that there are strong negative relations between the disclosure level and the size of cost of capital of the firm, the equity capital and the debt capital as well.

Second, the good disclosure firms generally show a statistically significant and negative relationship between the disclosure level and the costs of capital in the regression analysis.

These evidences can support the signaling effects of the disclosure system which contribute to mitigate the information asymmetry problems between the companies and the investors in general.