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Cost Of Equity Capital and Risk on USE: Equity finance; bank finance, which one is cheaper?

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Author Info
Mayanja, Abubaker B.
Legesi, Kenneth

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Abstract

Using data from 2003-2007, we calculate the systematic risk and cost of equity for firms listed on USE; Preliminary estimates show that nominal Cost of equity capital reduced over time from 63.24 percent (January 2005 to January 2006) to 18% (February 2006 to March 2007). The efficient frontier shifted below in the period considered to suggest a general lowering of expected returns on portfolios, re-affirming the notion that stock markets lead to reduction in the cost of funds; and thus a viable option to bank finance that at the moment is considered prohibitive with annual percentage rates of between 20-25.

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File URL: http://mpra.ub.uni-muenchen.de/6407/
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Publisher Info
Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 6407.

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Date of creation: Jul 2007
Date of revision: Aug 2007
Handle: RePEc:pra:mprapa:6407

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Related research
Keywords: Cost of equity capital Beta CAPM Uganda Securities Exchange (USE)

Find related papers by JEL classification:
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure

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  1. Blume, Marshall E & Friend, Irwin, 1973. "A New Look at the Capital Asset Pricing Model," Journal of Finance, American Finance Association, vol. 28(1), pages 19-33, March. [Downloadable!] (restricted)
  2. Blume, Marshall E, 1970. "Portfolio Theory: A Step Toward Its Practical Application," Journal of Business, University of Chicago Press, vol. 43(2), pages 152-73, April. [Downloadable!] (restricted)
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