What Affects the Implied Cost of Equity Capital?

32 Pages Posted: 8 Oct 2008

See all articles by Dan Gode

Dan Gode

affiliation not provided to SSRN

Partha S. Mohanram

University of Toronto - Rotman School of Management

Date Written: February 2001

Abstract

We estimate implied cost of equity capital for a sample of firms from 1984 to 1998 using the Ohlson and Juettner (2000) model that does not make restrictive assumptions about clean surplus and payout policies. We find that cost of equity capital is strongly positively associated with conventional risk factors such as earnings variability, systematic and unsystematic return volatility, and leverage, and is negatively associated with analyst following. These associations are robust to controls for industry membership and to running the regression in changes instead of levels. Our results support the Ohlson-Juettner metric as a robust and appealing measure of cost of equity capital.

Suggested Citation

Gode, Dan and Mohanram, Partha S., What Affects the Implied Cost of Equity Capital? (February 2001). NYU Working Paper No. DHANANJAY (DAN) K. GODE-01. Available at SSRN: https://ssrn.com/abstract=1280699

Dan Gode (Contact Author)

affiliation not provided to SSRN

No Address Available

Partha S. Mohanram

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

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