The relationship between book (accounting) rates of return and the cost of capital for firms and capital projects

2012 ◽  
pp. 153-156
Keyword(s):  
Cost Of Capital ◽  
Rates Of Return ◽  
Capital Projects ◽  
The Cost ◽  
The Relationship

Corporate governance and cost of equity: empirical evidence from Latin American companies

2016 ◽  
Vol 16 (5) ◽  
pp. 831-848 ◽  
Author(s):  
Emanuele Teti ◽  
Alberto Dell’Acqua ◽  
Leonardo Etro ◽  
Francesca Resmini
Keyword(s):  
Corporate Governance ◽  
Latin American ◽  
Cost Of Capital ◽  
Negative Relationship ◽  
Developed Countries ◽  
Equity Capital ◽  
Cost Of Equity ◽  
Content Type ◽  
The Cost ◽  
The Relationship

Purpose This paper aims to investigate the extent to which corporate governance (CG) systems adopted by Latin American listed firms affect their cost of equity capital. Several studies on the link between the two aforementioned dimensions have been carried out, but none in the context of Latin American firms. Design/methodology/approach A CG index is created by taking into account the peculiarities of each country and the recommendations given by the corresponding CG institutes. In particular, to assess the level of CG quality, three sub-indexes have been identified: “Disclosure”, “Board of Directors” and “Shareholder Rights, Ownership and Control Structure”. Findings The results indicate a negative relationship between CG quality and the cost of equity. In particular, the “Disclosure” component is the one mostly affecting the cost of equity. Research limitations/implications This study contributes to the literature by adding knowledge on the relationship between CG and cost of capital considering, for the first time, the overall Latin American market. Practical implications The paper proves that institutional investors all over the world are disposed to pay a premium to invest in firms with effective CG standards; moreover, this premium is higher in emerging countries such as those analyzed in this paper, rather than in developed countries. Originality/value To the authors' knowledge, this is the first paper empirically investigating the relationship between CG and cost of capital in Latin America.

scholarly journals Institutional investors and cost of capital: The moderating effect of ownership structure

PLoS ONE ◽  
2021 ◽  
Vol 16 (4) ◽  
pp. e0249963
Author(s):  
Xiaoping Huo ◽  
Hongying Lin ◽  
Yanan Meng ◽  
Peter Woods
Keyword(s):  
Corporate Governance ◽  
Ownership Structure ◽  
Capital Market ◽  
Institutional Investors ◽  
Cost Of Capital ◽  
Listed Companies ◽  
Moderating Effect ◽  
Theory And Practice ◽  
The Cost ◽  
The Relationship

Guiding institutional investors to actively participate in corporate governance is a hot issue to improve the internal governance of China’s listed companies. This study seeks to provide a comprehensive understanding of the mechanism that underlies the governance effects of the heterogeneity of institutional investors on the cost of capital, and the influence of ownership structure on the relationship between them. Using an unbalanced panel data on A-share listed companies of Shanghai and Shenzhen in China’s capital market during the 2014–2019 period, this study reveals how institutional investors with longer holding period and higher shareholding ratio are negatively associated with the cost of capital in China’s capital market. Furthermore, this study successfully confirms the moderating effect of ownership structure in the relationship between institutional investors and the cost of capital. China’s state-owned enterprises are more likely to introduce improvements at the corporate governance level, and ownership concentration weakens the negative influence of institutional investors on the cost of capital. The research contributes to a deeper understanding of the impacts of institutional investor’s heterogeneity and ownership structure on the cost of capital in China. In the process, the study yields useful implications for the theory and practice of corporate governance.

scholarly journals Leverage and the Cost of Capital: Some Tests Using Nepalese Data

2007 ◽  
Vol 3 (1) ◽  
pp. 85-91 ◽  
Author(s):  
Hari Bahadur Khadka
Keyword(s):  
Capital Structure ◽  
Capital Markets ◽  
Cost Of Capital ◽  
Traditional Approach ◽  
Cost Of Equity ◽  
Business Studies ◽  
Interest Charge ◽  
The Cost ◽  
The Relationship ◽  
The Capital Structure

This paper is devoted to test the MM’s propositions about the relationship between leverage and cost of capital in the context of Nepalese capital markets. The main objective of the study is to determine whether the firms' overall cost of capital and cost of equity decline with the increasing use of leverage. The results showed a negative but insignificant beta value of the relationship between leverage and the overall cost of capital. Therefore the leverage may not be regarded as contributing variable to the cost of capital function for Nepalese firms. But finding contradicts with the traditional approach of the capital structure theories. It is further concluded that the cost of capital declines not only with leverage because of the tax deductibility feature of interest charge. The relationship between the cost of equity and leverage is also strongly negative. Besides leverage, the size, and D-P Ratio are other important variables that affect the cost of capital in Nepalese context.Journal of Nepalese Business Studies 2006/III/1 pp. 85-91

The relation between excess control and cost of capital

2014 ◽  
Vol 10 (1) ◽  
pp. 93-114 ◽  
Author(s):  
Yves Bozec ◽  
Claude Laurin ◽  
Iwan Meier
Keyword(s):  
Firm Value ◽  
Design Methodology ◽  
Cost Of Capital ◽  
Weighted Average ◽  
Equity Capital ◽  
Content Type ◽  
The Common ◽  
Cash Flow Rights ◽  
The Cost ◽  
The Relationship

Purpose – The purpose of this study is to investigate the relationship between dominant shareholders, whose voting rights exceed cash flow rights (excess control), and firms’ cost of capital, including both equity capital and debt. Design/methodology/approach – This research is conducted in Canada over a four-year period from 2002 to 2005 and uses panel data of 155 S&P/TSX firms. The weighted average cost of capital is regressed on excess control using fixed-effect regressions in a two-stage least squares framework. Findings – The paper finds evidence that the cost of capital increases with excess control. The paper also confirms that for firms incorporated under the less protective Quebec incorporation law the excess control and, therefore, cost of capital is higher than for firms incorporated in the other provinces under the common law regime. Originality value – Prior work examined the relationship between excess control and firm value, mostly Tobin's Q. By using cost of capital, the study explores another channel through witch excess control may affect firm value.

scholarly journals Corporate social performance, cost of capital and the ownership in Taiwanese advantage technology industry

2012 ◽  
Vol 9 (3) ◽  
pp. 195-203 ◽  
Author(s):  
Chiaming Wu ◽  
Chin-Hsien Hsieh ◽  
Fengyi Lin
Keyword(s):  
Ownership Structure ◽  
Cost Of Capital ◽  
Corporate Social Performance ◽  
Social Performance ◽  
Matching Method ◽  
Technology Industry ◽  
Propensity Matching ◽  
Corporate Social ◽  
The Cost ◽  
The Relationship

This study discusses how corporate social responsibility (CSR) affects firm’s cost of capital in Taiwan advantage technology industry including semiconductor and photoelectric industry in the Taiwan Stock Market with different ownership structure. We match sample by propensity matching method and analyze the relationship between corporate social performance (CSP) and the cost of capital. Our results show the CSP has negative significant effects with cost of capital under family-owned companies, but no significant effects with non-family-owned companies. This study further address how media reported CSR news affects both shareholders’ reaction and firm’s cost of capital.

scholarly journals THE ECONOMIC LIMITS OF TRUST: THE CASE OF A LATIN-AMERICAN URBAN INFORMAL COMMERCE SECTOR

2007 ◽  
Vol 12 (03) ◽  
pp. 339-352 ◽  
Author(s):  
KLAUS JAFFE ◽  
SARY LEVY CARCIENTE ◽  
WLADIMIR ZANONI
Keyword(s):  
Latin American ◽  
Cost Of Capital ◽  
Institutional Support ◽  
Developing Nations ◽  
Supply Side ◽  
Working Capital ◽  
Street Vendors ◽  
Demand And Supply ◽  
The Cost ◽  
The Relationship

Social capital is thought to be an important source of social cohesion and a key ingredient for socioeconomic expansion in developing nations. We study its role among street vendors and their money lenders in Caracas, an illegal business based solely on trust and social bonds. We analyzed demand and supply of credit by informal street vendors and money lenders, exploring the relationship between street vendors' assets, income generated, financial and human capital and financial strategies, and those of the money lenders. We found that street vendors' main source of working capital were money lenders, despite charging the highest interest rate. The kind and amount of credit was not correlated to higher incomes. On the supply side, we found that money lenders based their business almost exclusively on trust and manage all clients personally, which limits the growth of their business. This study suggests that the main constraint for increased productivity in the informal sector is not the cost of capital, but the transaction costs involved in accessing credit and a lack of legal enforcements, and that improvement of the lending business is difficult without institutional support.

scholarly journals Sustainability Managed against Downside Risk and the Cost of Equity: Evidence in Korea

2018 ◽  
Vol 10 (11) ◽  
pp. 3969
Author(s):  
Truong Thuy ◽  
Jungmu Kim
Keyword(s):  
Stock Market ◽  
Stock Returns ◽  
Cross Section ◽  
Cost Of Capital ◽  
Downside Risk ◽  
Cost Of Equity ◽  
Cross Sectional ◽  
Korean Stock Market ◽  
The Cost ◽  
The Relationship

This study examines the relationship between sustainability managed against downside risk and the cost of equity in the Korean stock market during the 2000–2016 period. We employ downside co-skewness and downside beta as a measure of downside risk, to analyze the cross-sectional relationship between them and average portfolio stock returns. We have also carried out Fama–MacBeth regressions to find the required return for bearing downside risk. The results show that downside co-skewness can be used more effectively than downside beta to explain a cross-section of stock returns or cost of equity. The required premium for bearing downside risk, as measured by downside co-skewness, is approximately 19% per annum in the Korean stock market. This finding suggests that sustainable companies can raise their capital in the form of equity at 19% lower costs, and also implies that increasing sustainability can reduce the cost of capital.

Evaluating investment projects: The hurdle rate

2000 ◽  
Vol 2 (4) ◽  
pp. 295-303
Author(s):  
Hsaio‐Yun Chen ◽  
Charles Ward
Keyword(s):  
Real Options ◽  
Cost Of Capital ◽  
Capital Budgeting ◽  
Capital Projects ◽  
Rational Use ◽  
Investment Projects ◽  
Hurdle Rate ◽  
Hurdle Rates ◽  
The Cost

A previous paper in this journal discussed how to estimate the appropriate rate that should be used to evaluate investment projects. In this paper, the same theme is extended to discuss why projects might attract hurdle rates that are higher than the cost of capital. The answer involves discussion of the topic of real options, which may provide a rigorous explanation of how companies can value flexibility in capital budgeting. This paper discusses the gap between the hurdle rate and the cost of capital and explores possible explanations for the rational use of additional barriers before accepting capital projects.

scholarly journals Efek Mediasi Nilai Perusahaan pada Pengaruh Biaya Modal terhadap Return Saham di Indonesia

2019 ◽  
Vol 12 (2) ◽  
pp. 110
Author(s):  
Wishnu Okky Pranadi Tirta ◽  
Fitri Ismiyanti
Keyword(s):  
Stock Returns ◽  
Stock Return ◽  
Cost Of Capital ◽  
Financial Assets ◽  
Mediating Effects ◽  
The Public ◽  
The Cost ◽  
The Relationship ◽  
Intervening Variables ◽  
Real Assets

Investing in real assets or financial assets is increasingly becoming the choice for the public, forgetting a return or profit. This research aims to examine the effect of Cost of Capital on Stock Returns through Corporate Valuesas mediating variables in Indonesia during 2013 - 2017. The sample in this study was 780 companies. The method used in this study is regression analysis to see the influence between variables and path analysis to see the mediating effects of intervening variables. The results of this study indicate that the value of the Company can mediate the relationship between the cost of capital and stock return in Indonesia.

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