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But will it raise my share price? new thoughts about an old question

Author

Listed:
  • Michael Lubatkin

    (EM - EMLyon Business School)

  • William S. Schulze
  • James J. Nulty
  • Tony D Yeh

Abstract

In valuing any investment project or acquisition, executives must decide what discount rate to use to estimate the value of the projected cash flows. This paper argues that the traditional approach, which bases its estimate of the company's cost of capital on the Capital Asset Pricing Model, places the company at risk. Specifically, beta is unreliable and captures only a portion of the risk that managers and shareholders agree are important. The authors then offer an alternative measure - reflecting a company's total risk - that they say provides a reliable estimate and is consistent with the evolving theory of strategic management.

Suggested Citation

  • Michael Lubatkin & William S. Schulze & James J. Nulty & Tony D Yeh, 2003. "But will it raise my share price? new thoughts about an old question," Post-Print hal-02311666, HAL.
    • Handle: RePEc:hal:journl:hal-02311666
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    Cited by:

    1. Magomet Yandiev, 2011. "The Damped Fluctuations as a Base of Market Quotations," Working Papers 0003, Moscow State University, Faculty of Economics.
    2. Singh, Deeksha & Delios, Andrew, 2017. "Corporate governance, board networks and growth in domestic and international markets: Evidence from India," Journal of World Business, Elsevier, vol. 52(5), pages 615-627.

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