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Cost of Capital-The Effect to Firm Value and Profitability Performance in Malaysia

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  • Nor Edi Azhar Binti Mohamad

    ()
    (College of Business Management & Accounting UNITEN)

  • Noriza Binti Mohd Saad

    ()
    (College of Business Management & Accounting UNITEN)

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    Abstract

    Firm's cost of capital is determined in the capital markets and is closely related to the degree of risk associated with new investments, existing assets, and the firm's capital structure. It is an overall return that a corporation must earn on its accessible assets and business operations in order to augment or preserve the value of its current stock. Thus a careful approximation of a firm's specific financing and weighted-average cost of capital (WACC) is essential for a good financial management. Thus study highlights the effect of cost of capital towards firms’ value and profitability for a sample of 415 listed companies in main market Bursa Malaysia for 6 years basis from 2005 to 2010. The result of the study shows significant relationships exist between cost of capital with firm value and profitability.

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    Bibliographic Info

    Article provided by Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences in its journal International Journal of Academic Research in Accounting, Finance and Management Sciences.

    Volume (Year): 2 (2012)
    Issue (Month): 4 (October)
    Pages: 353-361

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    Handle: RePEc:hur:ijaraf:v:2:y:2012:i:4:p:353-361

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    Web page: http://hrmars.com/index.php/pages/detail/Accounting-Finance-Journal

    Related research

    Keywords: Weighted-average cost of capital; Tobin Q; Return on Asset and Z-Score;

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    References

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    1. Anjum Siddiqui, 2008. "Financial contracts, risk and performance of Islamic banking," Managerial Finance, Emerald Group Publishing, vol. 34(10), pages 680-694.
    2. Huang, Guihai & Song, Frank M., 2006. "The determinants of capital structure: Evidence from China," China Economic Review, Elsevier, vol. 17(1), pages 14-36.
    3. Lang, Larry H. P. & Stulz, ReneM. & Walkling, Ralph A., 1989. "Managerial performance, Tobin's Q, and the gains from successful tender offers," Journal of Financial Economics, Elsevier, vol. 24(1), pages 137-154, September.
    4. Kraus, Alan & Litzenberger, Robert H, 1973. "A State-Preference Model of Optimal Financial Leverage," Journal of Finance, American Finance Association, vol. 28(4), pages 911-22, September.
    5. Tobin, James, 1969. "A General Equilibrium Approach to Monetary Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 1(1), pages 15-29, February.
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