Promoting Entrepreneurship Education Through Valuation of Cost of Equity

2021 ◽  
pp. 321-347
Author(s):  
Olabanji Oni ◽  
Prince Sivalo Mahlangu
Keyword(s):  
Entrepreneurship Education ◽  
Equity Capital ◽  
Cost Of Equity Capital ◽  
Cost Of Equity ◽  
Expected Return ◽  
Extensive Discussion ◽  
The Future ◽  
Future Return ◽  
Beta Coefficient ◽  
Dividend Discount Model

This chapter provided an extensive discussion on promoting entrepreneurship education using capital asset pricing model (CAPM) and Gordon dividend discount Model in the valuation of cost of equity. Researchers have debated on the valid model for valuation cost of equity capital. There are two main models that can be used in the valuation of cost of equity capital; these are CAPM and the Gordon dividend discount model. The Gordon dividend discount model proposed by Myron Gordon is grounded on conventional assumptions. Gordon dividend discount model is built around the future value of dividends expected by the company's shareholders in line with the anticipated growth rate provided. However, CAPM sets its estimation of determining the expected return of a single asset on beta coefficient (β), which is difficult to predict. Predicting of β is based on a company's historical returns and the model asserts that historical returns of a company's stock can help in determining the future return of that stock. Practically, this is undoubtedly difficult to ascertain.

Options Trading and the Cost of Equity Capital

2012 ◽  
Vol 88 (1) ◽  
pp. 261-295 ◽  
Author(s):  
Vic Naiker ◽  
Farshid Navissi ◽  
Cameron Truong
Keyword(s):  
Trading Volume ◽  
Equity Capital ◽  
Data Availability ◽  
Cost Of Equity Capital ◽  
Cost Of Equity ◽  
Expected Return ◽  
Cross Sectional ◽  
Wide Range ◽  
Options Trading ◽  
Implied Cost Of Equity

ABSTRACT: This study examines how options trading affects the rate of return expected by investors, i.e., the implied cost of equity capital. Our cross-sectional analysis suggests that firms with listed options have lower implied cost of equity capital than firms without listed options, while the results from our temporal difference-in-differences analysis suggest that firms with listed options experience a significant decrease in their implied cost of equity capital relative to a matched sample of firms without listed options following an options listing. Moreover, we find that within firms that have listed options, firms with higher options trading volume are associated with lower implied cost of equity capital. These findings, which are robust to a wide range of additional tests, are consistent with the view that options trading improves the precision of information and reduces information asymmetry problems, resulting in lower expected return on equity. Data Availability: All data used in this study are publicly available from the sources identified in the paper.

Outperformance through Investing in ESG in Need

2018 ◽  
Keyword(s):  
Cost Of Capital ◽  
Equity Capital ◽  
Social Value ◽  
Cost Of Equity Capital ◽  
Cost Of Equity ◽  
Expected Return ◽  
Positive Return

To maximize their effectiveness, environmental, social, and governance (ESG) strategies should target those ESG firms that are most capital constrained. Inherently, this involves seeking ESG firms that have irrationally high costs of capital and thus high expected return. We replicate results that find returns among ESG firms that are similar to those among non-ESG firms. In addition, we find that sorting stocks based on cost of equity capital generates significant positive return for both ESG and non-ESG firms. Investing in an ESG in Need index, which contains only high-ESG companies and tilts toward firms with high cost of capital, thus generates both higher social value and better return than investing in traditional capitalization-weighted ESG indexes.

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