The cost of debt capital revisited

PurposeThe main purpose of this study is to describe and analyse the relationship between the 2008–2009 global financial crisis and small and medium-sized enterprises' cost of debt capital.Design/methodology/approachStatistical methods, including multiple OLS and dynamic panel data, were used to analyse a longitudinal cross-sectional panel dataset of 3865 Swedish SMEs operating in five industry sectors over the 2008–2015 period.FindingsThe results suggest that the cost of debt was influenced by the financial crisis and another macroeconomic factor, i.e. the interbank interest rate, and by firm-specific factors such as firm size and lagged cost of debt.Originality/valueTo the authors' best knowledge, this is one of few studies to examine the cost of debt among SMEs during the crisis and post-crisis periods using data from a large-scale, longitudinal, cross-sectional database.

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Analysis of the structure and cost of capital in mining enterprises

Gospodarka Surowcami Mineralnymi ◽

10.1515/gospo-2017-0001 ◽

2017 ◽

Vol 33 (1) ◽

pp. 77-92 ◽

Cited By ~ 1

Author(s):

Robert Ranosz

Keyword(s):

Capital Structure ◽

Cost Of Capital ◽

Cost Of Debt ◽

Cost Of Equity ◽

Mining Company ◽

Optimal Capital Structure ◽

Mining Companies ◽

Debt Capital ◽

Capital Funding ◽

The Cost

AbstractThis article focuses on the analysis of the structure and cost of capital in mining companies. Proper selection of appropriate levels of equity and debt capital funding of investment has a significant impact on its value. Thus, to maximize the value of the company, the capital structure of the company should be composed to minimize the weighted average cost of capital. T he objective of the article is to present the capital structure of selected Polish and world’s mining companies and estimate their cost of equity and debt capital. In the paper the optimal capital structure for the Polish mining company (KGHM SA) was also estimated. It was assumed that both Polish and world’s mining companies, have no debt exceeding 45% in the financing structure. For the most of analyzed cases, the level of financing with debt capital is in the range between 10% and 35%. T he cost of equity exceeds the cost of debt capital and is in the range between 8% and 20%, while the cost of debt capital reaches the range between 1.9% and 12%. T he analysis of the optimal capital structure determining, performed for the selected mining company, showed that debt capital funding for the company should be in the range between 5.7% and 7.4%.

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DETERMINANTS OF INTEREST RATES ON CORPORATE DEBT

Financial and credit activity problems of theory and practice ◽

10.18371/fcaptp.v4i39.241315 ◽

2021 ◽

Vol 4 (39) ◽

pp. 264-275

Author(s):

O. Tereshchenko ◽

M. Stetsko ◽

N. Tkachenko ◽

N. Babiak

Keyword(s):

Interest Rate ◽

Interest Rates ◽

Discount Rate ◽

Cost Of Debt ◽

Probability Of Default ◽

Credit Risks ◽

Debt Capital ◽

Credit Default ◽

Rate Calculation ◽

The Cost

Abstract. The objective of this article is theoretical and methodological justifying of determining algorithm of the cost of debt capital for enterprises functioning in emerging markets (EM). The methods of research: analysis and synthesis, system analysis, comparative analysis, empirical and statistical methods, factor analysis. Results. In this article key determinants of interest rates on debt capital for enterprises and their impact on the procedure of discount rate calculation are determined. The issue of the cost of debt calculation of enterprises in condition of absence of complete information concerning systematic and non-systematic crediting risks is studied. Differences between interest rate on the loan fixed in credit agreement and expected by creditors the cost of debt are identified. It is determined that the key factor impacting the deviation level of market value of debt capital from the nominal, and respectively, deviation of the cost of debt from the cost of capital is probability of default (PD). At the minimum values of PD, the contract interest rate corresponds to the rate of cost of debt and it is advisable to use it for discount rate calculation. Critical analysis of alternative methodological approaches of the cost of debt calculation is made. Ways of integrating of market information concerning credit default swaps into the process of expected cost of debt calculation are justified. Factors of shadowing of rates of the cost of debt and ways of reducing of shadow transactions’ level in the credit market are identified. Conclusions. At high PD values, expected by market premium for default risk may exceed the contract interest rate, which necessitates constant monitoring of credit risks and appropriate adaptation of interest rates. In the paper the algorithm of such adaptation are proposed. It is shown that in the case of non-use of interest rates adjustment taking into account changes in PD, CDS and LGD, premium for creditors’ systematic risk can differ significantly from market values of similar enterprises (peer-group), and estimated value of the cost of debt can acquire negative values. Contract (promised) interest rate should be set in such way that the premium for systematic risk of providing debt capital will be at the level of similar companies and does not change significantly as a result of probability of default changes. If in practice the opposite situation occurs, it is the evidence of contract interest rate shadowing, absence of effective system of assessment and management of credit risks. For solving the problem of interest rate transparency and filling of information gaps concerning PD borrowers in EM countries, should intensify CDS market. Keywords: debt capital, default probability, non-performing loans, credit default swap, credit spread, debt capital premium, shadow economy. JEL Classification E47 Formulas: 16; fig.: 0; tabl.: 3; bibl.: 15.

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