scholarly journals The Cost of Equity Capital on Developing Equity Markets: Estimations for Selected Slovene Companies

2010 ◽  
Vol 5 (1) ◽  
pp. 67-74
Author(s):  
Igor Stubelj
Keyword(s):  
Equity Markets ◽  
Capital Budgeting ◽  
Cash Flows ◽  
Equity Capital ◽  
Cost Of Equity Capital ◽  
Cost Of Equity ◽  
Publicly Traded Companies ◽  
And Performance ◽  
The Cost ◽  
Free Cash Flows

The Cost of Equity Capital on Developing Equity Markets: Estimations for Selected Slovene CompaniesThe article sheds light on the estimation of the cost of equity capital on a developing equity market. The cost of equity is important; it is crucial in capital budgeting decisions and performance evaluation. It determines the minimum yield the investors require on the invested capital and we use it as a discount rate to calculate the present value of the expected free cash flows to equity. The aim of this paper is to tackle the estimation of the cost of equity capital on developing markets with the example of estimation for ten Slovene publicly traded companies. The estimated cost of capital for the selected Slovene companies is between 9,7% and 13,7%.

scholarly journals The Effect of Corporate Tax Avoidance on the Cost of Equity

2016 ◽  
Vol 91 (6) ◽  
pp. 1647-1670 ◽  
Author(s):  
Beng Wee Goh ◽  
Jimmy Lee ◽  
Chee Yeow Lim ◽  
Terry Shevlin
Keyword(s):  
Information Quality ◽  
Tax Avoidance ◽  
Cash Flows ◽  
Equity Capital ◽  
Testable Hypothesis ◽  
Cost Of Equity Capital ◽  
Cost Of Equity ◽  
Corporate Tax ◽  
Long Run ◽  
The Cost

ABSTRACT Based on Lambert, Leuz, and Verrecchia's (2007) derivation of the cost of equity capital in terms of expected cash flows, we generate a testable hypothesis that relates tax avoidance to a firm's cost of equity capital. Using three broad measures of tax avoidance—book-tax differences, permanent book-tax differences, and long-run cash effective tax rates—to test our hypothesis, we find that the cost of equity is lower for tax-avoiding firms. This effect is stronger for firms with better outside monitoring, firms that likely realize higher marginal benefits from tax savings, and firms with higher information quality. Overall, our results suggest that equity investors generally require a lower expected rate of return due to the positive cash flow effects of corporate tax avoidance. JEL Classifications: G32; H26; M41.

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 International Real Estate Review

2019 ◽  
Vol 22 (3) ◽  
pp. 399-430
Author(s):  
Francesco Busato ◽  
◽  
Cuono Massimo Coletta ◽  
Maria Manganiello ◽  
◽  
...  
Keyword(s):  
Real Estate ◽  
Factor Model ◽  
Five Factor Model ◽  
Estimation Method ◽  
Capital Budgeting ◽  
Equity Capital ◽  
Forecast Errors ◽  
Cost Of Equity Capital ◽  
Cost Of Equity ◽  
The Cost

One of the fundamental concepts in financial economics is the cost of equity capital. The cost of equity is an important tool often used by a firm as a capital budgeting threshold for the required rate of return. The cost of equity of a firm also represents the compensation the market demands in exchange for owning the asset and bearing the risk of ownership. This paper focuses on the cost of equity capital estimates for a particular U.S. industry, the real estate investment trust (REIT) industry, to highlight the key role played by the choice of estimation method on the distant forecast. By using a comprehensive sample of 51 REITs over the period of January 1997 to December 2014, we compare the ¡§hybrid beta¡¨ approach developed by Cosemans et al. (2016) with the Carhart four-factor model, the REIT-factor model in Chen et al. (2012) and the five-factor model formulated by Fama and French (2015). Our results demonstrate the superiority of the ¡§hybrid beta¡¨ approach, which almost always produces, at the firm and portfolio-levels, absolute forecast errors that are lower than those of the other models implemented in our study.

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.

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