Firm Inflexibility and the Implied Cost of Equity
18 Pages Posted: 14 Sep 2022 Last revised: 20 Jun 2023
Date Written: August 30, 2022
Using a large dataset of manufacturing firms from 65 countries, we examine whether and how firm inflexibility influences implied cost of equity over the period 1989–2018. We find that, on average, firms with higher levels of inflexibility have a higher implied cost of equity. These results are consistent with the view that investors perceive firms with higher levels of inflexibility as risky firms. Our findings are robust to alternative proxies for firm inflexibility and cost of equity capital. We also show that association between firm inflexibility and implied cost of equity is more pronounced for small firms.
Keywords: Firm inflexibility, Cost of equity
JEL Classification: G32
Suggested Citation: Suggested Citation