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Variations in Valuation Methodologies and the Cost of Capital: Evidence from MENA Countries

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  • Alaa Rady
  • Hakim Meshreki
  • Ayman Ismail
  • Laura Núñez

Abstract

Does the capital asset pricing model (CAPM) reflects the real risks perceived in doing business in countries in the Middle East and North Africa (MENA)? To explore this question, first, we examine whether the CAPM yields consistent results in calculating the weighted average cost of capital (WACC) as applied by different academic databases, by comparing three different academic databases for 736 listed companies on stock exchanges in the MENA region. Second, we examine whether practitioners use the WACC inputs and calculations consistent with academic databases, through an analysis of 83 companies and in-depth interviews with 8 financial institutions. We also explore adjustments made by practitioners to reflect the real risk they perceive in MENA countries.

Suggested Citation

  • Alaa Rady & Hakim Meshreki & Ayman Ismail & Laura Núñez, 2019. "Variations in Valuation Methodologies and the Cost of Capital: Evidence from MENA Countries," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 55(9), pages 2106-2123, July.
    • Handle: RePEc:mes:emfitr:v:55:y:2019:i:9:p:2106-2123
    DOI: 10.1080/1540496X.2018.1533462
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    Cited by:

    1. César Omar López à vila & Norma Pontet Ubal, 2020. "Complementary break-even point with economic value added," Documentos de Investigación 128, Universidad ORT Uruguay. Facultad de Administración y Ciencias Sociales.
    2. Justyna Franc-Dąbrowska & Magdalena Mądra-Sawicka & Anna Milewska, 2021. "Energy Sector Risk and Cost of Capital Assessment—Companies and Investors Perspective," Energies, MDPI, vol. 14(6), pages 1-20, March.

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