Based on China’s special institutional background and market environment, this paper makes the theoretical analyses and empirical tests on the role of institutional investors in corporate governance and capital market from the perspective of how institutional investors affects the earnings quality and the cost of debt capital.The results show that institutional ownership has a significant impact on the cost of debt capital, but the impact of various institutional investors on the cost of debt capital is significantly different on the whole. The earnings quality has a mediating effect on the impact of institutional ownership on the cost of debt capital.The institutional investors such as investment funds, insurance companies and social security funds can help to improve the quality of earnings, reduce the cost of debt capital, and enhance the value of the company, while the institutional ownership of investors such as securities firms and trust firms have adverse effects on the cost of debt capital.