Additional Evidence on the Corporate Cost of Capital and the Return to Corporate Investment

Journal of Applied Finance, Spring/Summer 2009, Vol. 19, Issue 1/2, pp. 91-102

Posted: 27 Jul 2012

See all articles by Michael J. Alderson

Michael J. Alderson

Saint Louis University - Richard A. Chaifetz School of Business

Brian L. Betker

Saint Louis University

Date Written: 2009

Abstract

We examine the corporate cost of capital and the return on corporate investment through 2005, which allows us to examine these values during the inflating and bursting of the tech bubble of the late 1990's. We examine the return on investment of tech and telecom firms separately over that time period Investment by tech and telecom firms spiked dramatically above historical norms from 1996-2000; this spike was financed in part by issuing equity at a rate far above historical norms. In contrast, investment by non-tech firms rose only slightly in 1996-2000, and net stock issuance over that time period was zero. The cost of capital for all firms fell dramatically in the late 1990's and appears to have been negative in the tech and telecom sectors as the tech bubble peaked

Suggested Citation

Alderson, Michael J. and Betker, Brian L., Additional Evidence on the Corporate Cost of Capital and the Return to Corporate Investment (2009). Journal of Applied Finance, Spring/Summer 2009, Vol. 19, Issue 1/2, pp. 91-102, Available at SSRN: https://ssrn.com/abstract=1652590

Michael J. Alderson (Contact Author)

Saint Louis University - Richard A. Chaifetz School of Business ( email )

3674 Lindell Blvd
St. Louis, MO 63108-3397
United States
314-977-8169 (Phone)
314-977-3897 (Fax)

Brian L. Betker

Saint Louis University ( email )

St. Louis, MO 63108-3397
United States

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