Does the Weighted Cost of Capital Associate with Returns on Operating and Financial Assets with Investor Anticipation or Reaction? [And Do Operating and Financial Assets Have Synergy?]
Zane L. Swanson
University of Central Oklahoma
The relation of firm accounting information and investor decision-making is a key financial accounting issue. Firm accounting information is a result of management's decisions. This study focuses on the investors' perspective of the consequences of management's actions with respect to the cost of firm capital and the returns on assets. Conventional thought hypothesizes management to maximize the return on asset investments within the rubric of minimizing the firm weighted average cost of capital. Within this framework, we investigate financial statement relevance with regard to whether investors anticipate or react to firm asset investment returns. The study also examines the existence of synergy between firm operating and financial asset returns. Because leverage is a central capital structure factor, we also investigate the leverage impact on the relation between investor supplied fund costs and asset returns.
Number of Pages in PDF File: 27
Keywords: accounting information relevance, weighted average cost of capital, asset returns
JEL Classification: G10, G14, G32, M41working papers series
Date posted: November 16, 2007 ; Last revised: February 10, 2008
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo1 in 0.390 seconds