Growth Options, Beta, and the Cost of Capital

Détails

ID Serval
serval:BIB_C86D0975F211
Type
Article: article d'un périodique ou d'un magazine.
Collection
Publications
Titre
Growth Options, Beta, and the Cost of Capital
Périodique
Financial Management
Auteur(s)
Bernardo  A., Chowdhry  B., Goyal  A.
ISSN
0046-3892
Statut éditorial
Publié
Date de publication
2007
Peer-reviewed
Oui
Volume
36
Numéro
2
Pages
5-17
Langue
anglais
Résumé
We show how to decompose a firm's beta into its beta of assets-in-place and its beta of growth opportunities.. Our empirical results demonstrate that the beta of growth opportunities is greater than the beta of assets-in-place for virtually all industries over all periods of time dating back to 1977. The difference has important implications for determining the cost of capital. For example, when choosing comparables to determine aproject beta one should match the growth opportunities of the project with those of the comparable firm. Assuming a 6% market equity risk premium, accounting for growth opportunities alters the project cost of capital by as much as 2% to 3%.
Mots-clé
Asset price dynamics, corporate-investment, cross-section, returns, risk, duration, equity, valuation
Web of science
Création de la notice
07/07/2009 14:32
Dernière modification de la notice
20/08/2019 16:43
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