scholarly journals A Behavioral Approach To Derive The Cost Of Equity Capital For Small Closely Held Firms

2011 ◽  
Vol 4 (10) ◽  
Author(s):  
Denis Boudreaux ◽  
Tom Watson ◽  
James Hopper
Keyword(s):  
Stock Prices ◽  
Stock Price ◽  
Reliability And Validity ◽  
Weighted Average ◽  
Equity Capital ◽  
Behavioral Approach ◽  
Cost Of Equity Capital ◽  
Cost Of Equity ◽  
Discounted Cash Flow ◽  
The Cost

The purpose of this research is to explore the theoretical structure that underlies the valuation process for small closely held firms.  All discounted cash flow valuation models require an estimate of a firm’s weighted average cost of capital as well as the firm’s component cost of equity capital. The CAPM is frequently employed to measure the cost of equity capital for a publicly traded firm.  A publicly held firm’s common stock price is determined in the capital markets and is readily available.  The firm’s stock price can then be used to estimate its beta; a necessary input to the CAPM.  Because there is no information about stock prices, the task of estimating the cost of equity for a closely held firm is more challenging.  The build-up model is frequently used to calculate the cost of equity for the closely held firm. However there is much controversy over this model’s assumptions, reliability and validity.  Specifically, this research critiques the build-up model identifying its advantages and its liabilities. The purpose of this work is to create discussion and stimulate economists to study and improve this important area.  Additionally, this study offers a new economic model to estimate the cost of equity capital that is theoretically correct easy to understand

scholarly journals Methods of Bank Valuation in the Age of Globalization

2015 ◽  
pp. 173-183
Author(s):  
A. Karminsky ◽  
E. Frolova
Keyword(s):  
Weighted Average ◽  
Cash Flows ◽  
Equity Capital ◽  
Residual Income ◽  
Cost Of Equity Capital ◽  
Cost Of Equity ◽  
Discounted Cash Flow ◽  
Funding Liquidity ◽  
Equity Value ◽  
The Cost

This paper reviews the theory ofvalue-based management at the commercial bank and the main valuation methods in the age of globalization. The paper identifies five main factors that significantly influence valuation models selection and building: funding, liquidity, risks, exogenous factors and the capital cushion. It is shown that valuation models can be classified depending on underlying cash flows. Particular attention is paid to models based on potentially available cash flows (Discounted cash flow-oriented approaches, DCF) and models based on residual income flows (Residual income-oriented approaches). In addition, we consider an alternative approach based on comparison with same sector banks (based on multiples). For bank valuation equity discounted сash flow method is recommended (Equity DCF). Equity DCF values equity value of a bank directly by discounting cash flows to equity at the cost of equity (Capital Asset Pricing Model, CAPM), rather than at the weighted average cost of capital (WACC). For the purposes of operational management residual income-oriented approaches are recommended for use, because they are better aligned with the process of internal planning and forecasting in banks. For strategic management residual income-oriented methods most useful when expected cash flows are negative throughout the forecast period. Discounted сash flow-oriented approaches are preferable when expected cash flows have positive values and needs for models using is motivated by supporting the investment decisions. Proposed classification can be developed in interests of bank management tasks in the midterm in the age of globalization.

scholarly journals The Impact of Intellectual Capital Disclosure and Information Asymmetry on the Cost of Equity Capital

2017 ◽  
Vol 6 (5) ◽  
pp. 1-12
Author(s):  
Bombang Hadi Prabowo
Keyword(s):  
Information Asymmetry ◽  
Intellectual Capital ◽  
Stock Prices ◽  
Stock Price ◽  
Research Result ◽  
Positive Influence ◽  
Equity Capital ◽  
Cost Of Equity Capital ◽  
Cost Of Equity ◽  
The Impact

This research aims to analyze the impact of Intellectual Capital Disclosure and Information Asymmetry on Cost of Equity Capital and stock prices. It used purporsive sampling and studied LQ 45 companies enlisted in 2014-2015 Indonesia Stock Exchange. The research data gathered through non-partisan observation method and then analyzed with PLS analysis equation. The result shown: (1) Information Asymmetry has positive significance towards stock price; (2) Intellectual Capital has insignificant positive influence towards stock price; (3) Intellectual Capital has insignificant positive influence towards Cost of Equity Capita; (4) Information Asymmetry has insignificant positive towards Cost of Equity Capital; (5) Cost of Equity Capital has insignificant negative influence towards stock price. This research result validate previous researches’ findings especially in agency theory and asymmetry theory.

scholarly journals Information Asymmetry, Ownership Structure and Cost of Equity Capital: The Formation for Open Innovation

2021 ◽  
Vol 7 (1) ◽  
pp. 48
Author(s):  
Ade Imam Muslim ◽  
Doddy Setiawan
Keyword(s):  
Stock Market ◽  
Information Asymmetry ◽  
Ownership Structure ◽  
Trading Volume ◽  
Foreign Ownership ◽  
Equity Capital ◽  
Cost Of Equity Capital ◽  
Cost Of Equity ◽  
Ownership Structures ◽  
The Cost

Our study aims to investigate how information asymmetry and ownership structure affect cost of equity capital. For that purpose, we collected 246 issuers over 4 years for a total of 984 observations. By using panel data processing, we found that the information asymmetry we proxied through Price non-Synchronization and trading volume had an effect on the cost of equity capital. Our results also confirmed both Agency Theory and Pecking Order Theory. Both theories are in line with the conditions of the stock market in Indonesia. In addition, we found that institutional and foreign ownership structures also had an effect on the cost of equity capital. Furthermore, our results also confirmed Interest Alignment Theory and Entrenchment Theory. Our research is expected to contribute to the debate on the existence of information asymmetry and ownership structures in relation to the cost of equity capital. We also hope that it will be a valuable input for investors in considering their investment. Moreover, from the results of this study, investors can also consider foreign ownership or institutional ownership in determining their investment. In addition, stock market regulators in Indonesia can develop approaches to minimize information asymmetry and encourage foreign investors to invest in Indonesia.

Company reputation and the cost of equity capital

2014 ◽  
Vol 20 (1) ◽  
pp. 42-81 ◽  
Author(s):  
Ying Cao ◽  
James N. Myers ◽  
Linda A. Myers ◽  
Thomas C. Omer
Keyword(s):  
Equity Capital ◽  
Cost Of Equity Capital ◽  
Cost Of Equity ◽  
Company Reputation ◽  
The Cost
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