Cost of capital adjusted for governance risk through a multiplicative model of expected returns
This paper sets forth another contribution to the long standing debate over cost of capital, firstly by introducing a multiplicative model that translates the inner structure of the weighted average cost of capital rate and, secondly, adjusting such rate for governance risk. The conventional wisdom states that the cost of capital may be figured out by means of a weighted average of debt and capital. But this is a linear approximation only, which may bring about miscalculations, whereas the multiplicative model not only takes account of that linear approximation but also the joint outcome of expected costs of debt and stock, and their proportions in the capital structure. And finally, we factor into the cost of capital expression a rate of governance risk.
|Date of creation:||Nov 2008|
|Contact details of provider:|| Postal: Av. Córdoba 374, (C1054AAP) Capital Federal|
Phone: (5411) 6314-3000
Fax: (5411) 4314-1654
Web page: http://www.cema.edu.ar/publicaciones/doc_trabajo.html
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Reilly, Raymond R. & Wecker, William E., 1973. "On the Weighted Average Cost of Capital," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 8(01), pages 123-126, January.
- Rodolfo Apreda, 2004. "Differential rates, residual information sets and transactional algebras," CEMA Working Papers: Serie Documentos de Trabajo. 256, Universidad del CEMA.
- Rodolfo Apreda, 2007. "Factoring governance risk into investors´expected rates of return by means of a weighted average governance index," CEMA Working Papers: Serie Documentos de Trabajo. 356, Universidad del CEMA.
When requesting a correction, please mention this item's handle: RePEc:cem:doctra:383. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Valeria Dowding)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.