RATE OF COSTS ON INVESTMENT CAPITAL IN EMERGING MARKETS

2019 ◽  
Vol 6 ◽  
pp. 665 ◽  
Author(s):  
Oleg Tereshenko ◽  
Nataliya Voloshanyk ◽  
Dmytro Savchuk
Keyword(s):  
Emerging Markets ◽  
Discount Rate ◽  
Capital Market ◽  
Risk Premium ◽  
Emerging Market ◽  
Weighted Average ◽  
Capital Costs ◽  
Investment Capital ◽  
Capm Model ◽  
Risk Free Rate

To date, there is no adequate methodology for calculating the discount rate that would satisfy most financial analysts. The most common approach to determining the discount rate is to use the weighted average cost of capital (WACC) algorithm. The calculation of capital costs (discount rates) in emerging market countries (EM) is characterized by a number of problems related to the information inefficiency of the capital market, instability of demand for products, inflation, macroeconomic and legal uncertainty and a lack of proper payment discipline. Even more complex are the corresponding calculations during the financial crisis, accompanied by hyperinflation, a fall or significant fluctuations in the rate of the national monetary unit, trade wars, and the collapse of the banking system.Especially problematic for emerging markets is the calculation of the cost of equity (investment) capital. In developed markets, the classical CAPM model is used for these purposes. Taking into account the lack of an effective capital market in EM-related countries, it is quite difficult to determine the standard parameters of the model (risk-free rate of return, market risk premium, beta factor). Significant problems also lie in the sources and shadow schemes for paying high premiums for the risks of investing capital in EM. The aim of the paper is to substantiate recommendations on the procedure for calculating the rate of costs for own (investment) capital, taking into account the specifics of corporate activities in countries related to EM. 

scholarly journals The Features of Market Value Assessment of the Objects of Intellectual Property When Conducting Forensic Expertise

2019 ◽  
Vol 14 (2) ◽  
pp. 128-135
Author(s):  
K. H. Mamikonyan
Keyword(s):  
Intellectual Property ◽  
Discount Rate ◽  
Initial Conditions ◽  
Traditional Approach ◽  
Weighted Average ◽  
Market Value ◽  
Assessment Method ◽  
Value Assessment ◽  
Debt Capital ◽  
Investment Capital

Illicit use of intellectual property violates the rights of the person/company that owns it. The expertise of intellectual property in many ways helps to restore justice in cases of rights violation. To conduct such expertise the knowledge of not only the intellectual property rights is required, but also of the activity to which the disputed intellectual property belongs. The article discusses some approaches to assessment of the market value of intellectual property, for instance it is assumed that when calculating the discount rate of intellectual property (for example, a brand), a company’s weighted average cost of capital (WACC) can be used. A hypothesis is substantiated that the methodology for determining discount rates using the “traditional” approach, when the discount rate takes all risks into account and is applied to the most probable values of the income measure, is based on the direct observations on the capital value market for a business. It is noted that the discount rate for intangible assets not necessarily should differ from that for a business. Thus, WACC assessment method is a discount rate for the invested capital. The method of estimating the discount rate based on WACC, shows the rate of return to be paid for the use of investment capital. The latter may consist of two sources of financing: own capital and debt capital. The article provides a thorough and detailed analysis of the WACC and notes that it can be used in both financial and investment analysis to assess future returns on investments, considering the initial conditions for profitability of investment capital.

scholarly journals Test for cointegration and causality between ISE and emerging market ındices; diversification opportunities for ınvestorsBİST ile yükselen piyasalara ait endeksler arasındaki eş bütünleşme ve nedenselliğin test edilmesi; yatırımcılar açısından çeşitlendirme fırsatları

2017 ◽  
Vol 14 (4) ◽  
pp. 3486
Author(s):  
Umut Burak Geyikçi
Keyword(s):  
Emerging Markets ◽  
Capital Market ◽  
Emerging Market ◽  
Structural Break ◽  
Unit Root Tests ◽  
Cusum Test ◽  
Short Term ◽  
Causality Test ◽  
Johansen Cointegration Test

It was aimed to show the diversification possibilities that investors can catch in terms of emerging markets in the study. Within the scope of the study, the emerging markets of Turkey, Europe, Asia and America were compared. A total of 12 markets, 4 from Europe, 1 from the Americas and 7 from Asia were selected. Monthly closing values for the capital market were used for 16 years period (176 observations) for July 2002 - June 2017. The series were tested with the ADF, PP and Zivot andrews unit root tests, then Johansen Cointegration test and Wector Erroro Correction/Granger Causality test were used after it was found that there was no structural break with the Cusum test. As a result of the research, all the markets are found cointegrated in the long term. In a short term it is found that Turkey has mutual causality with Thailand, Russia, Poland, Brazil and also Taiwan, Malaysia and Czechia have one-way causality with Turkey. As a result, it can be said that there is no short-term causality relation with some emerging markets with the ISE and that it is possible to diversify in the short term in terms of investors.Extended English abstract is in the end of PDF (TURKISH) file. ÖzetBu çalışma ile yatırımcıların yükselen piyasalar açısından yakalayabilecekleri çeşitlendirme imkanları ortaya konmaya çalışılmıştır. Çalışma kapsamında Türkiye ile Avrupa, Asya ve Amerika kıtasında yer alan yükselen piyasalar karşılaştırılmıştır. Bu amaçla 4’ü Avrupadan, 1’i Amerikadan, 7’si de Asyadan olmak üzere toplamda 12 piyasa seçilmiştir. Temmuz 2002 – Haziran 2017 dönemine ait 16 yıllık periyotta (176 gözlem) sermaye piyasasına ait aylık kapanış değerleri kullanılmıştır. Gerçekleştirilen çalışmada önce ADF, PP ve Zivot-Andrews birim kök testleri ile seriler test edilmiş, sonrasında Cusum testi ile yapısal kırılma olmadığı anlaşıldıktan sonra, Johansen Eşbütünleşme testi ve ardından da Vektör Hata Düzeltme/Granger Nedensellik Testi kullanılmıştır. Araştırma neticesinde incelenen tüm piyasaların uzun dönemde eşbütünleşik oldukları, kısa dönemde ise Türkiye’nin Taylan, Rusya, Polonya ve Brezilya ile karşılıklı, Tayvan, Malezya ve Çekya’nın ise Türkiye ile tek yönlü bir nedensellik ilişkisinde olduğu tespit edilmiştir. Bu çerçevede, BİST’in inceleme kapsamındaki bazı yükselen piyasalarla kısa dönemde nedensellik ilişkisi bulunmadığı ve yatırımcılar açısından kısa vadede hali hazırda bir çeşitlendirme imkanı sunduğu söylenebilmektedir.  

Hotel Business Inn

2019 ◽  
Vol 9 (4) ◽  
pp. 1-15
Author(s):  
Eduardo Luis Montiel ◽  
Octavio Martinez
Keyword(s):  
Learning Outcomes ◽  
Discount Rate ◽  
Emerging Market ◽  
Weighted Average ◽  
Country Risk ◽  
Cost Of Equity ◽  
Content Type ◽  
Academic Level ◽  
The Cost

Learning outcomes These are the three most important learning outcomes: discuss the relevance of capital asset pricing model (CAPM) as the methodology to estimate the cost of equity for an investment in an emerging market; analyze the different alternatives to estimate country risk discussing the pros and cons of each. Consider the additional complexity in estimating the cost of equity, contrasting the perspective of a local, non-diversified investor with that of a multinational company operating in 39 countries. Case overview/synopsis The Chief Financial Officer of a business group has to determine the correct discount rate for an investment in a new hotel in Guayaquil, Ecuador. The group has traditionally used the same discount rate for all projects and is now presented with several alternatives by his team. Estimating the correct country risk adjustment for the project is an important challenge. He knows that there is no clear solution to this challenge that is accepted by all practitioners and academics, but he has to present a recommendation to the board. Complexity academic level The case study is designed for corporate finance, appraisal or international finance courses in both MBA and executive training programs. To discuss this case study, students are assumed to have been already exposed to the weighted average cost of capital and the CAPM. Supplementary materials Teaching Notes are available for educators only. Please contact your library to gain login details or email [email protected] to request teaching notes. Subject code CSS 1: Accounting and finance.

Corporate fraud and information asymmetry in emerging markets

2019 ◽  
Vol 26 (1) ◽  
pp. 95-112 ◽  
Author(s):  
Abdul Ghafoor ◽  
Rozaimah Zainudin ◽  
Nurul Shahnaz Mahdzan
Keyword(s):  
Emerging Markets ◽  
Information Asymmetry ◽  
Event Study ◽  
Capital Market ◽  
Emerging Market ◽  
Developed Countries ◽  
Governance Mechanism ◽  
Ols Regression ◽  
Content Type ◽  
Practical Implications

PurposeThe purpose of this study is to examine changes in firms’ level of information asymmetry in emerging market of Malaysia for the period of 2000-2016. Specifically, the study focuses on changes in the quoted spread and quoted depth following the fraud announcement.Design/methodology/approachThe study uses a unique set of fraud sample using enforcement action releases (EARs) identified from the Security Commission of Malaysia and Bursa Malaysia. To estimate the result, the authors use event study methodology, OLS regression and simultaneous model on a set of 67 fraudulent firms.FindingsThe results of event study, OLS regression and simultaneous equation models suggest that information asymmetry increases on fraud discovery. The authors also use the analysis on subsamples classified by the type of regulator (who issued the enforcement release) and type of fraud committed. However, the authors find no evidence of a difference in information asymmetry across these groups. Overall, the results support the reputational view of fraud that it damages the firms’ reputation and increases uncertainty in the capital market.Research limitations/implicationsThese findings provide valuable insights into understanding the information asymmetry around fraud announcements, especially for Malaysia, where the majority of the public-listed companies are family-controlled and under significant state control. The results of this study call for the active role that regulators can play to achieve a transparent and liquid capital market.Practical implicationsThe research has practical implications. Specifically, for Malaysia, fraud is the primary area for National Results Areas (NKRA) in the Government Transformation Program (GTP). Therefore, for regulators and policymakers to ensure a liquid and transparent capital market, identifying the factors that elicit the fraudulent behavior and improving the related governance mechanism are necessary steps to prevent the fraudulent practices.Social implicationsDue to increased information asymmetry on fraud announcements, the demand for equity decreases that may affect not only the fraudulent firms but also results in negative externality for non-fraudulent firms, thus impairing their ability to fund equity.Originality/valueA significant majority of studies have focused on corporate frauds in developed countries such as the USA that is characterized by dispersed ownership system and a strong capital market. One of the vocal critics of the agency theory is that it neglects the social and institutional framework within which companies operate. In emerging markets, such as Malaysia, the published academic papers on fraud and information asymmetry are very limited. As emerging markets practice different cultures, corporate governance mechanisms and market regulations, the study is significant to investigate the behavior of investors in such markets.

scholarly journals CAPITAL IMPLICIT EXPENSES IN THE SHADOW ECONOMIC REVENUE

10.23856/2509 ◽  
2017 ◽  
Vol 25 (6) ◽  
pp. 85 ◽  
Author(s):  
Oleg Tereshchenko ◽  
Natalia Voloshanyuk
Keyword(s):  
Emerging Markets ◽  
Risk Premium ◽  
Shadow Economy ◽  
Substantial Reduction ◽  
Developed Countries ◽  
Global Market ◽  
Global Risk ◽  
Expected Return ◽  
Stable Relationship ◽  
Risk Free Rate

 In many countries related to emerging markets (EM), there is a high proportion of the shadow economy. The main source of shadow incomes replenishment are incomes that are actually generated in the official sector of the economy, however, they are withdrawn to the shadow segment. The article is dedicated to solving the actual task of income amount estimating that flows from the official sector of the economy to the shadow one. The paper shows that the amount of annual profits that "poured" into the shadow sector corresponds to the size of the hidden (implicit) payment for capital. The problem of shadow payment for capital is closely connected with the shadowing of profits, salaries and payments for the resources usage. The causal relationship between risk premium, shadow economy and key macroeconomic parameters of individual countries are shown in the article. The average income to GDP per capita ratio in Ukraine and other EM countries is significantly lower than in developed countries. In addition, there is a low share of staff costs in the structure of costs of enterprises. Thus, in the EM countries, the orientation of the business to the interests of the shareholders is clearly manifested and the interests of the stakeholders are ignored. In emerging markets, an increase in risks primarily leads to an increase in the risk premium and the shadowing level, to rising prices and to a substantial reduction in real salaries. For the estimation of real capital expenditures, it is advisable to use indirect methods, especially modification of capital assets pricing model (CAPM), adapted to the conditions of the EM. The proposed modification (hybrid crisis model) involves minimum usage of the data from the local financial market. It includes the following parameters: global risk-free rate of return, global market premium for risk, country risk premium, beta-factor, calculated on the basis of the analogue approach, and premium for specific risks of investing in a particular asset. According to our assumption, the shadow interest rate on capital is the difference between the expected return by CAPM and the averaged ROE that follows from the official reporting. Thus, the size of annual profits, "transferred" into the shadow sector, corresponds to the size of the implicit capital charge. The calculations made have showed a stable relationship between the level of country risks and the size of shadow revenues in the country.

scholarly journals Estimating the Cost of Equity Using a Mining Build‑Up Model

2017 ◽  
Vol 65 (5) ◽  
pp. 1643-1653
Author(s):  
Petr Bora ◽  
Michal Vaněk
Keyword(s):  
Risk Premium ◽  
Weighted Average ◽  
Financial Risks ◽  
Cost Of Equity ◽  
Analytic Hierarchy ◽  
Mining Company ◽  
A Value ◽  
Risk Free Rate ◽  
The Cost ◽  
Hierarchy Process

Among other methods, build‑up models have been used to value equity. However, the build‑up models are usually general models to appraise business and financial risks, and thus cannot fully mirror the special characteristics of different industries. The article presents a new model called ‘Mining Build‑up Model’ to assess the risks of mining companies. The model has four modules of risks (A – Business risks, B – Financial risks, C – Mining risks, and D – Module of a mining company), altogether roofing 12 areas of different risks. To demonstrate its usefulness, the Mining Build‑up Model was applied on a mining company called OKD, a.s. – a member of the mining group New World Resources (NWR) in the Czech Republic. For the different areas of risks, we quantified the components of risk, which became the starting points to determine the final risk premium. The quantification of the components of risks relies on expert evaluations of the degree of risk of the different components of risk in the risk modules. The weighs of the components of risks were determined using Saaty’s method (the Analytic Hierarchy Process – AHP). We found that in OKD, a. s. – a member of the mining group NWR – the risk premium of cost of equity reached the value of 12.52 % in 2013. As we worked with the risk‑free rate of return at a value of 2.83 %, the cost of equity for OKD, a. s. – a member of the mining group NWR, amounted to 15.35 %. The weighted average cost of capital of NWR Plc was calculated as 12.34 %.

Commodities in International and Emerging Markets

2018 ◽  
Author(s):  
Kamal Smimou
Keyword(s):  
Business Cycle ◽  
Emerging Markets ◽  
Emerging Market ◽  
Trading Strategies ◽  
Emerging Nations ◽  
Economic Significance ◽  
Portfolio Strategy ◽  
Bond Portfolio ◽  
The Business Cycle ◽  
Global Investors

This chapter seeks to elucidate the relations of U.S.-listed global commodity futures, the business cycle, and stocks and bonds of emerging markets. It shows that global investors poised to benefit from investing in emerging market securities can concurrently learn from and better understand the dynamic intermarket relations when establishing such trading strategies. Investment in emerging markets can enhance the performance and sturdiness of an equity or bond portfolio strategy. Evidence lends support to the conjecture that a subtle contemporaneous and occasionally trailing effect exerted by the movement of global commodities on the business cycle exists. Global commodities also affect equity and bond market dynamics. The evidence also reveals differences in terms of economic significance and magnitude among selected emerging nations and across various commodities.

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