Abstract: Relaxing the assumption that information is free,a information structure model is developed adding a new factor—information cost, under the theoretical framework of information structure model created by Easley and O'Hara. The equilibrium model is established between information structure and four aspects of information structure, including information cost, information risk, quality of information disclosure and prior information.The results are concluded in four propositions. In empirical research, by selecting adverse selection cost as the proxy of information cost and choosing probability of informed trading(PIN) to measure information risk, it is found that the relation between information cost and equity cost is an inversed U shaped curve. Higher information risk is accompanied with higher cost of equity. Better quality of information disclosure and prior information means lower equity cost. The empirical results are consistent with the former four propositions.The initiative difference from Easley and O'Hara are that adding information cost into the theoretical model and provide empirical results.

Key words: cost of equity, information cost, information risk, quality of prior information, quality of information disclosure