scholarly journals Cost of Capital Adjusted for Governance Risk through a Multiplicative Model of Expected Returns

2008 ◽  
Author(s):  
Rodolfo Apreda
Keyword(s):  
Cost Of Capital ◽  
Multiplicative Model ◽  
Expected Returns ◽  
Governance Risk

scholarly journals Cost of capital adjusted for governance risk through a multiplicative model of expected returns

2011 ◽  
Vol 1 (1) ◽  
pp. 9-18 ◽  
Author(s):  
Rodolfo Apreda
Keyword(s):  
Capital Structure ◽  
Linear Approximation ◽  
Average Cost ◽  
Cost Of Capital ◽  
Weighted Average ◽  
Multiplicative Model ◽  
Conventional Wisdom ◽  
Expected Returns ◽  
The Cost ◽  
Governance Risk

This paper sets forth another contribution to the long standing debate over cost of capital, firstly by introducing a multiplicative model that translates the inner structure of the weighted average cost of capital rate and, secondly, adjusting such rate for governance risk. The conventional wisdom states that the cost of capital may be figured out by means of a weighted average of debt and capital. But this is a linear approximation only, which may bring about miscalculations, whereas the multiplicative model not only takes account of that linear approximation but also the joint outcome of expected costs of debt and stock, and their proportions in the capital structure. And finally, we factor into the cost of capital expression a rate of governance risk.

Is the new issue puzzle real? Evidence from implied cost of capital

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Snow Han
Keyword(s):  
Initial Public Offering ◽  
Risk Premium ◽  
Cost Of Capital ◽  
Expected Returns ◽  
Limited Information ◽  
Content Type ◽  
Listed Firms ◽  
Implied Cost Of Capital ◽  
Ex Post ◽  
Ex Ante

PurposeThis study aims to provide new explanation of the new issue puzzle.Design/methodology/approachThis study uses market implied cost of capital (ICC), rather than ex post realized returns, as proxy for ex ante expected returns, and sheds new light on the question why initial public offering (IPO) firms underperform the market within a 3–5 years period after the offerings.FindingsUsing ICC, the author finds that the market expects to earn higher risk premium for new listing firms than similar firms, which is contradictory to the documented new issue puzzle. The higher expected returns come from higher idiosyncratic volatility for newly listed firms, which are young and have more growth opportunities. The author also reports that investors are negatively surprised by lower-than-expected performances of newly listed firms.Originality/valueThe author’s results provide new empirical evidence that the new issue puzzle does not exist. Previous results observed IPO firms' under-performance is attributable to that ex post realized returns are a noisy proxy for ex ante expected returns, especially for newly listed firms with limited information.

scholarly journals The Real Options Solution To A Cost-Of-Capital Dilemma

2010 ◽  
Vol 8 (2) ◽  
Author(s):  
David Eagle ◽  
David L. Senteney ◽  
Dean Kiefer ◽  
Arsen Djatej
Keyword(s):  
General Equilibrium ◽  
Real Options ◽  
Equilibrium Model ◽  
Cost Of Capital ◽  
General Equilibrium Model ◽  
Rate Of Return ◽  
Expected Returns ◽  
Font Size ◽  
Expected Return ◽  
The Real

<p class="MsoNormal" style="text-align: justify; margin: 0in 0.5in 0pt; mso-pagination: none;"><span style="color: #0d0d0d; font-size: 10pt; mso-themecolor: text1; mso-themetint: 242;"><span style="font-family: Times New Roman;">The required rate of return should equal the average expected return in the market for the same level of risk.<span style="mso-spacerun: yes;">&nbsp; </span>However, firms should only accept such projects with expected returns that <span style="text-decoration: underline;">exceed</span> this required rate of return.<span style="mso-spacerun: yes;">&nbsp; </span>This contradicts our first statement that the required rate of return <span style="text-decoration: underline;">equals</span> this average expected return for the market.<span style="mso-spacerun: yes;">&nbsp; </span>We study this possible paradox in the context of a stochastic general-equilibrium model with endogenous prices.<span style="mso-spacerun: yes;">&nbsp; </span>We find that the capitalization of the real options involved in this model explains away this contradiction or paradox.</span></span></p>

scholarly journals On the relation between expected returns and implied cost of capital

2009 ◽  
Vol 14 (2-3) ◽  
pp. 246-259 ◽  
Author(s):  
John Hughes ◽  
Jing Liu ◽  
Jun Liu
Keyword(s):  
Cost Of Capital ◽  
Expected Returns ◽  
Implied Cost Of Capital

Assessment of the banking system of Ukraine by a multiplicative model

2013 ◽  
Author(s):  
Oleksandr Trydid ◽  
Natalia Pogorelenko ◽  
Borys Samorodov
Keyword(s):  
Banking System ◽  
Multiplicative Model

Formation Of An Estimate For A State Contract With A Firm Price In The Construction Sector

2020 ◽  
pp. 47-57
Keyword(s):  
Construction Projects ◽  
Cost Of Capital ◽  
Federal Budget ◽  
The State ◽  
Structural Elements ◽  
Construction Sector ◽  
Construction Process ◽  
Practical Application ◽  
Stage Of Development ◽  
Capital Construction

The issues of determining the estimated cost of capital construction projects with the involvement of Federal budget funds at the stage of development of project documentation, during verification of the accuracy of determining the estimated cost and the initial (maximum) contract price are considered. On the basis of the assessment of amendments to urban planning legislation for the purpose of implementing a state contract by the contractor ( based on the results of competitive procedures or without competitive procedures by decision of state authorities), the procedure for forming the estimate as part of a state (municipal) contract, the price of which is firm, is presented. For the purpose of mutual settlements between the customer and the contractor for the work performed, the formation of primary accounting documentation, as well as for checking the work performed by regulatory authorities, an example of drawing up an estimate of the state (municipal) contract on the basis of grouping costs according to structural elements and complexes of work is given. The result of the research conducted was the development of regulations and the formation of criteria for their practical application by state bodies, institutions, organizations and other participants in the investment-construction process, as well as recipients of budget funds, who perform the functions of the state (municipal) customer, developer and technical customer.

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