Managers' cost of equity capital estimates: empirical evidence

Larocque, S, Lawrence, A and Veenstra, K (2018) Managers' cost of equity capital estimates: empirical evidence. Journal of Accounting, Auditing and Finance, 33 (3). pp. 382-401. ISSN 0148-558X

Abstract

Using actual practice data from U.S. corporate treasury executives, we provide initial evidence of managers’ internal estimates of their firms’ cost of equity capital (COEC) and extrapolate managers’ estimation practices to the broader population of public firms. Our study provides insights into the assumptions managers use in applying the capital asset pricing model (CAPM), the model that managers generally use to estimate their firms’ COEC according to prior research. We show that COEC estimates based on managers’ surveyed estimation practices are positively correlated with realized returns only in the pre-survey period, suggesting that managers set their COEC estimates in a backward-looking manner. Moreover, managers’ estimates are most correlated with estimates reverse-engineered following Easton, (2004) and Gode and Mohanram (2003).

More Details

[error in script]
Item Type: Article
Subject Areas: Accounting
Date Deposited: 19 Dec 2017 10:50
Subjects: Costs
Capital theory
Last Modified: 28 Mar 2024 02:55
URI: https://lbsresearch.london.edu/id/eprint/944
[error in script] More

Export and Share


Download

Full text not available from this repository.

Statistics

Altmetrics
View details on Dimensions' website

Downloads from LBS Research Online

View details

Actions (login required)

Edit Item Edit Item