Damodaran’s Country Risk Premium: A Serious Critique
Free University of Berlin (FUB) - Department of Business and Economics
Freie Universität Berlin
University of Graz
July 31, 2010
For several years, when setting discount rates Damodaran has advocated more consideration of country risk premiums (CRP) when it comes to assessing companies with activities in emerging markets. In this paper we want to perform a systematic analysis and critical discussion of his CRP concept. It will turn out that Damodaran’s concept of a country risk premium (CRP) is of no relevance in academic circles, has no theoretical basis neither is the CRP concept empirically supported. Furthermore, the rates of return on capital that are derived by such methods are highly arbitrary.
Number of Pages in PDF File: 20
Keywords: Country Risk Premium, Valuation, Cost of Capital
JEL Classification: G31, G15, G11working papers series
Date posted: July 31, 2010 ; Last revised: August 4, 2010
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