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Implied cost of capital over the last 20 years

Author

Listed:
  • Norio Kitagawa

    (Graduate School of Business Administration, Kobe University)

  • Masatoshi Goto

    (Graduate School of Business Administration, Kobe University)

Abstract

The purpose of this paper is to estimate an alternative implied cost of capital inferred from a valuation model, and consider its validity and use. This paper presents interesting evidence in terms of a comparison with U.S. analysis results. While prior studies (e.g., Gode and Mohanram 2003) suggest the superiority of a cost of capital inferred from Gebhardt et al. (2001) model, this paper indicates that the cost of capital inferred from the PEG model and modified PEG model reflects risks more appropriately. Furthermore, we suggest that the correlation between the cost of capital and risk factors varies depending on periods. Although Gode and Mohanram (2003) pointed out that the difference in the cost of capital by industry is important, it is shown that the difference in a time series of cost of capital is more important in Japan.

Suggested Citation

  • Norio Kitagawa & Masatoshi Goto, 2010. "Implied cost of capital over the last 20 years," Discussion Papers 2010-65, Kobe University, Graduate School of Business Administration, revised 2009.
    • Handle: RePEc:kbb:dpaper:2010-65
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    File URL: https://www.b.kobe-u.ac.jp/papers_files/2010_65.pdf
    File Function: Revised version, 2010
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