Information risk, cost of equity and stock returns: evidence from Iranian firms

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ahmad Abdollahi ◽  
Mehdi Safari Gerayli ◽  
Yasser Rezaei Pitenoei ◽  
Davood Hassanpour ◽  
Fatemeh Riahi
Keyword(s):  
Stock Returns ◽  
Capital Market ◽  
Cost Of Capital ◽  
Positive Impact ◽  
Stock Exchange ◽  
Cost Of Equity ◽  
Content Type ◽  
Information Risk ◽  
The Cost ◽  
The Impact

Purpose A long history of literature has considered the role of information risk in determining the cost of equity. The question that has remained unanswered is whether information risk plays any systematic role in determining the cost of equity. One of the fundamental decisions that every business needs to make is to assess where to invest its funds and to re-evaluate, at regular intervals, the quality of its existing investments. The cost of capital is the most important yardstick to evaluate such decisions. Greater information is associated with the lower cost of capital via mitigating transaction costs and/or reducing estimation risk and stock returns. This study aims to investigate the impact of information risk on the cost of equity and corporate stock returns. Design/methodology/approach The research sample consists of 960 firm-year observations for companies listed on the Tehran Stock Exchange from 2009 to 2018. The research hypotheses were tested using multivariate regression models based on panel data. Findings The results reveal that information risk has a significant positive impact on the firm’s cost of equity. However, the impact of information risk on stock returns is not statistically significant. Originality/value To the best of the knowledge, the current study is almost the first of its kind in the Iranian literature which investigates the subject matter; therefore, the findings of the study not only extend the extant theoretical literature concerning the information risk in developing countries including the emerging capital market of Iran but also help investors, capital market regulators and accounting standard setters to make timely decisions.

The Cost of Equity Capital in Stock Portfolios Listed on the Warsaw Stock Exchange Using the Classic CAPM

e-Finanse ◽  
2019 ◽  
Vol 15 (2) ◽  
pp. 48-62
Author(s):  
Stanisław Urbański
Keyword(s):  
Real Options ◽  
Stock Returns ◽  
Cost Of Capital ◽  
Stock Exchange ◽  
Bootstrap Method ◽  
Equity Capital ◽  
Cost Of Equity Capital ◽  
Cost Of Equity ◽  
Warsaw Stock Exchange ◽  
The Cost

AbstractThis work is an attempt to estimate the cost of equity capital characteristic among portfolios of companies listed on the Warsaw Stock Exchange in the years 1995-2017. To this end, the classic CAPM is used to estimate the cost of risk. Model tests are based on 252 monthly returns. In order to assess the errors of cost of capital estimation, the bootstrap method is used. The estimated cost of capital refers to the project portfolio with real options on these projects. Stock returns are generated not only by the companies implementing projects but also through real options modifying these projects. The estimated cost of capital can be a valuable indicator for portfolio managers. Also, it can be an approximate indicator for making decisions on the implementation of new investment projects. The estimated cost of capital assumes the highest values for value portfolios. The estimated cost of capital assumes the small values for growth portfolios.

The impact of environmental performance on capital structure and firm performance: the case of Turkey

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ismail Kalash
Keyword(s):  
Capital Structure ◽  
Financial Performance ◽  
Stock Returns ◽  
Environmental Performance ◽  
Positive Impact ◽  
Stock Exchange ◽  
Ordinary Least Squares ◽  
Content Type ◽  
The Impact ◽  
The Capital Structure

Purpose The purpose of this study is to investigate the effect of environmental performance on the capital structure and financial performance of Turkish listed firms. Design/methodology/approach This study used data of 49 firms listed on Istanbul Stock Exchange during the period between 2014 and 2019, resulting in 205 firm-year observations. The environmental performance data were drawn from the carbon disclosure project Turkey climate change reports. Ordinary least squares and binary logistic regression models were used to examine whether environmental performance impacts the capital structure and financial performance. Findings The findings of this research revealed that environmental performance significantly positively affects the firm leverage. Findings also showed that environmental performance has a significantly positive impact on return on assets, operating profitability and return on equity, but no significant impact on stock returns. Practical implications Given the increased borrowing costs for Turkish firms after the 2018 currency crisis in Turkey, the findings of this study are very important as they enable managers of Turkish firms to make better decisions related to capital structure and to understand the role of environmental performance in reducing the cost of debt and enhancing financial performance. Originality/value To the author’s knowledge, this research is the first to investigate the effect of environmental performance on capital structure in the Turkish context, and is one of few that explained how environmental performance affects the financial performance of Turkish firms.

Sustainability engagement in Latin America firms and cost of equity

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Renato Garzón Jiménez ◽  
Ana Zorio-Grima
Keyword(s):  
Latin America ◽  
Positive Impact ◽  
Generalized Method Of Moments ◽  
Negative Relationship ◽  
Agency Conflicts ◽  
Cost Of Equity ◽  
Content Type ◽  
Sustainable Behavior ◽  
The Cost ◽  
The Impact

PurposeCorporate social responsibility (CSR) actions are expected to reduce information asymmetries and increase legitimacy among the stakeholders of the company, which consequently should have a positive impact on the financial conditions of the firm. Hence, the objective of this paper is to find empirical evidence on the negative relationship between sustainable behavior and the cost of equity, in the specific context of Latin America. To address this issue, some proxies and moderating variables for sustainability are used in our study.Design/methodology/approachThe regression model considers a sample with 252 publicly trading firms and 2,772 firm-year observations, from 2008 to 2018. The generalized method of moments is used to avoid endogeneity problems.FindingsThe study finds evidence that firms with higher environmental, social and governance activities disclosed by sustainability reports and assured by external providers decrease their cost of equity, especially if they are in an integrated market as MILA. This finding confirms that agency conflicts between firm's management and stakeholders diminish with higher CSR transparency, leading to a lower cost of capital.Originality/valueOur research is unique and valuable as, to our knowledge, it is the first study to analyze the impact of sustainable behavior and the cost of equity from companies operating in Latin America.

The impact of leverage on the cost of capital and market value

2020 ◽  
Vol 43 (9) ◽  
pp. 1081-1096 ◽  
Author(s):  
Enrico Battisti ◽  
Luigi Bollani ◽  
Nicola Miglietta ◽  
Antonio Salvi
Keyword(s):  
Cost Of Capital ◽  
Stock Exchange ◽  
Weighted Average ◽  
Principal Component ◽  
Market Value ◽  
Listed Companies ◽  
Content Type ◽  
Operating Profit ◽  
The Cost ◽  
The Impact

Purpose This paper aims to investigate the impact of leverage on the cost of capital and market value in the Indonesia Stock Exchange (IDX), where there are Sharīʿah and non-Sharīʿah compliant firms. Design/methodology/approach This study uses a mixed methods sequential exploratory design and is based on an empirical analysis undertaken with a sample of firms listed on the IDX. In particular, a qualitative analysis was conducted to identify the Sharīʿah-compliant firms and the qualitative study was designed to compare some financial elements in Sharīʿah and non-Sharīʿah compliant listed companies. The correlations among the main elements observed are considered and a principal component analysis describes the framework. Findings First, the results of the analysis show that for the Sharīʿah-compliant companies, identified as those that apply Islamic principles, the lower level of leverage that it is typical of these type of firms implies a higher cost of capital [cost of equity and weighted average cost of capital (WACC)] than non-Sharīʿah ones. Secondly, for the Sharīʿah-compliant companies, the lower level of leverage entails a higher market value measured by the multiples method (price/earning and enterprise value/operating profit) than for non-Sharīʿah ones. Originality/value This paper sheds new light on how leverage can affect the cost of capital and market value in the case of Sharīʿah and non-Sharīʿah compliant listed companies in the IDX. In particular, this research highlights the fact that Sharīʿah-compliant firms, despite having a higher WACC, create more market value compared to non-Sharīʿah compliant ones.

CSR and cost of capital: evidence from Japan

2017 ◽  
Vol 13 (4) ◽  
pp. 798-816 ◽  
Author(s):  
Megumi Suto ◽  
Hitoshi Takehara
Keyword(s):  
Ownership Structure ◽  
Capital Market ◽  
Cost Of Capital ◽  
Corporate Social Performance ◽  
Weighted Average ◽  
Cost Of Debt ◽  
Cost Of Equity ◽  
Content Type ◽  
Stakeholder Relationships ◽  
The Cost

Purpose This study aims to examine the link between corporate social performance (CSP) and the cost of capital of Japanese firms in 2008-2013, considering the influences of banking relationships and ownership structure. Design/methodology/approach It examines the relation between CSP and the cost of capital in terms of the cost of debt, cost of equity and weighted average cost of capital, using a composite CSP measure based on stakeholder relationships. A regression model is adopted, controlling for bank dependency, ownership structure and firm-specific attributes. Findings Institutional ownership influences the CSP–cost of equity relation and reduces the cost of equity, while CSP is perceived by debtors as not information-mitigating for the observed period. For 2008-2010, the relation between CSP and bank dependency increases the cost of debt; however, the positive influence of bank dependency on the cost of debt dilutes during 2010-2013 as the shift to a more market-oriented financial market in Japan occurs. Practical implications Although bank borrowing is important, especially for small firms, non-financial disclosure makes external financing more flexible. Institutional investors concerned about the non-financial aspects of business, therefore, play an important role in mitigating the information asymmetry that exists in the capital market. Originality/value This study extends research on the CSP–cost of capital link by considering structural changes in financial systems (e.g. capital market perception of CSP and banks as delegated monitors).

Carbon emissions and the cost of capital: Australian evidence

2014 ◽  
Vol 13 (4) ◽  
pp. 400-420 ◽  
Author(s):  
Yongqing Li ◽  
Ian Eddie ◽  
Jinghui Liu
Keyword(s):  
Carbon Emissions ◽  
Emission Intensity ◽  
Carbon Emission ◽  
Cost Of Capital ◽  
Cost Of Debt ◽  
Emissions Reduction ◽  
Cost Of Equity ◽  
Content Type ◽  
The Cost ◽  
The Impact

Purpose – The purpose of this paper is to investigate the potential impact of the approved Australian carbon emissions reduction plan on the cost of capital and the association between companies’ carbon emission intensity and the cost of capital. Design/methodology/approach – A sample of Australian Stock Exchange 200 (ASX 200)-indexed companies from 2006 to 2010 is used. Hypotheses are tested based on Heckman’s two-stage approach. Three regression models are developed to examine the association between carbon emissions and the cost of capital. Findings – Using a sample of ASX 200-indexed listed companies, the paper finds that the cost of capital, including the cost of debt and the cost of equity, will increase for emissions-liable companies. Results also show that the cost of debt is positively correlated with a company’s emission intensity. However, little evidence supports that the emission intensity affects the cost of equity. Originality/value – As it is evident that the emissions reduction plan will adversely affect corporate entities’ cost of capital, this study suggests that companies, investors and lenders need to include carbon emission in risk analysis. An emissions-liable company should establish strategies to combat the impact of the Plan on rising cost that comes with the enforcement of the Plan. Government assistance is essential in the transitional period.

scholarly journals The Impact of Stock Price Crash Risk on the Cost of Capital: Empirical Study from China

2021 ◽  
Vol 3 (2) ◽  
pp. 88-97
Author(s):  
Muhammad Hamza Khan ◽  
Muhammad Rizwan
Keyword(s):  
Information Disclosure ◽  
Stock Price ◽  
Cost Of Capital ◽  
Stock Exchange ◽  
Cost Of Debt ◽  
Crash Risk ◽  
Cost Of Equity ◽  
Coefficient Of Skewness ◽  
The Cost ◽  
The Impact

This study analysed the effect of Sock Price Crash Risk (SPCR) on the cost of capital in Chinese listed firms in the Shenzhen stock exchange and the shanghai Stock Exchange. A sample of 290 firms based on the highest value of assets of each firm was used. The cost of capital consists of two factors; the cost of equity (COE) and the cost of debt (COD). The SPCR is measured by using two statistics, one is NCSKEW means the negative coefficient of skewness of the firm-specific weekly returns and the second is DUVOL that means Down to-Up Volatility used to measure the crash likelihood weekly return of firm-specific and used the Modified PEG ratio model of Eston approach to measuring the cost of equity. We used panel data to run the regression model analyses. SPCR was found to have a significantly positive relationship with the cost of equity and cost of debt. Also, the sample was divided into the State-Owned enterprise (SOEs) and Non-State-Owned enterprises (NSOEs) for comparison. The results show that the impact of SPCR on the COE and COD is stronger in SOEs than NSOEs. The regulators need to improve and strengthen the development of laws and regulations related to company information disclosure, to reduce the cost of capital of listed companies and improve the efficiency of financing the Chinese capital market. Companies need to work together to strengthen internal controls, create a good disclosure environment, and prevent the SPCR.

The performance of the Broad Based Black Economic Empowerment compliant listed property firms in South Africa

2016 ◽  
Vol 34 (1) ◽  
pp. 3-26 ◽  
Author(s):  
Omokolade Akinsomi ◽  
Katlego Kola ◽  
Thembelihle Ndlovu ◽  
Millicent Motloung
Keyword(s):  
Stock Returns ◽  
Factor Model ◽  
Stock Exchange ◽  
Sharpe Ratio ◽  
Economic Empowerment ◽  
Content Type ◽  
Black Economic ◽  
Black Economic Empowerment ◽  
The Government ◽  
The Impact

Purpose – The purpose of this paper is to examine the impact of Broad-Based Black Economic Empowerment (BBBEE) on the risk and returns of listed and delisted property firms on the Johannesburg Stock Exchange (JSE). The study was investigated to understand the impact of Black Economic Empowerment (BEE) property sector charter and effect of government intervention on property listed markets. Design/methodology/approach – The study examines the performance trends of the listed and delisted property firms on the JSE from January 2006 to January 2012. The data were obtained from McGregor BFA database to compute the risk and return measures of the listed and delisted property firms. The study employs a capital asset pricing model (CAPM) to derive the alpha (outperformance) and beta (risk) to examine the trend amongst the BEE and non-BEE firms, Sharpe ratio was also employed as a measurement of performance. A comparative study is employed to analyse the risks and returns between listed property firms that are BEE compliant and BEE non-compliant. Findings – Results show that there exists differences in returns and risk between BEE-compliant firms and non-BEE-compliant firms. The study shows that BEE-compliant firms have higher returns than non-BEE firms and are less risky than non-BEE firms. By establishing this relationship, this possibly affects the investor’s decision to invest in BEE firms rather than non-BBBEE firms. This study can also assist the government in strategically adjusting the policy. Research limitations/implications – This study employs a CAPM which is a single-factor model. Further study could employ a multi-factor model. Practical implications – The results of this investigation, with the effects of BEE on returns, using annualized returns, the Sharpe ratio and alpha (outperformance), results show that BEE firms perform better than non-BEE firms. These results pose several implications for investors particularly when structuring their portfolios, further study would need to examine the role of BEE on stock returns in line with other factors that affect stock returns. The results in this study have several implications for government agencies, there may be the need to monitor the effect of the BEE policies on firm returns and re-calibrate policies accordingly. Originality/value – This study investigates the performance of listed property firms on the JSE which are BEE compliant. This is the first study to investigate listed property firms which are BEE compliant.

Epidemics and Chinese firms' stock returns: is COVID-19 different?

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Quang Thi Thieu Nguyen ◽  
Dao Le Trang Anh ◽  
Christopher Gan
Keyword(s):  
Stock Returns ◽  
Negative Impact ◽  
Stock Exchange ◽  
Market Performance ◽  
Disease Outbreaks ◽  
Stock Exchanges ◽  
Content Type ◽  
Event Study Method ◽  
Economic Shock ◽  
The Impact

PurposeThis study investigates the Chinese stocks' returns during different epidemic periods to assess their effects on firms' market performance.Design/methodology/approachThe study employs an event study method on more than 3,000 firms listed on Shanghai and Shenzhen stock exchanges during periods of SARS, H5N1, H7N9 and COVID-19FindingsEpidemics' effect on firms' stock returns is persistent up to 10 days after the event dates. Although the impact varies with types and development of the disease, most firms experience a negative impact of the epidemics. Among the epidemics, COVID-19 has the greatest impact, especially when it grows into a pandemic. The epidemics' impact is uneven across industries. In addition, B-shares and stocks listed on Shanghai Stock Exchange are more negatively influenced by the epidemic than A-shares and those listed on Shenzhen Stock Exchange.Research limitations/implicationsThe results of the study contribute to the limited literature on the effects of disease outbreaks as an economic shock on firm market performance. Given the possibility of other epidemics in the future, the study provides guidance for investors in designing an appropriate investing strategy to cope with the epidemic shocks to the market.Originality/valueThe research is novel in the way it compares and assesses the economic impact of different epidemics on firms and considers their impact at different development stages.

The financial consequences of human capital disclosure as part of integrated reporting

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Antonio Salvi ◽  
Nicola Raimo ◽  
Felice Petruzzella ◽  
Filippo Vitolla
Keyword(s):  
Human Capital ◽  
Firm Value ◽  
Fixed Effects ◽  
Cost Of Capital ◽  
Positive Impact ◽  
Firm Risk ◽  
Integrated Reporting ◽  
Content Type ◽  
Financial Consequences ◽  
The Cost

PurposeThe purpose of this paper is to analyse the financial consequences of the level of human capital (HC) information disclosed by firms through integrated reports. Specifically, this work examines the effect of HC information on the cost of capital and firm value.Design/methodology/approachA manual content analysis is used to measure the level of HC information contained in integrated reports. A fixed-effects regression model is used to analyse 375 observations (a balanced panel of 125 firms for the period 2017–2019) and test the financial consequences of HC disclosure.FindingsThe empirical outcomes indicate that HC disclosure has a significant and negative effect on the cost of capital and a positive impact on firm value. Our results show that companies can reduce investors' perceived firm risk by improving HC disclosure, leading to a lower cost of capital. Moreover, our findings support the notion that increased levels of HC disclosure are linked to firms' improved access to external financial resources, consequently enhancing firm value.Originality/valueThis study is the first contribution to examine the financial consequences of HC disclosure and is one of the first to examine the level of HC information within integrated reports.

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