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Resolving the Reliance on Fixed Estimation Dates in the Implied Cost of Equity Capital Approach
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| Zeitschriftentitel: | Journal of Business Valuation and Economic Loss Analysis |
|---|---|
| Personen und Körperschaften: | , |
| In: | Journal of Business Valuation and Economic Loss Analysis, 14, 2019, 1 |
| Format: | E-Article |
| Sprache: | Unbestimmt |
| veröffentlicht: |
Walter de Gruyter GmbH
|
| Schlagwörter: |
| author_facet |
Kempkes, Jan A. Wömpener, Andreas Kempkes, Jan A. Wömpener, Andreas |
|---|---|
| author |
Kempkes, Jan A. Wömpener, Andreas |
| spellingShingle |
Kempkes, Jan A. Wömpener, Andreas Journal of Business Valuation and Economic Loss Analysis Resolving the Reliance on Fixed Estimation Dates in the Implied Cost of Equity Capital Approach Strategy and Management Economics and Econometrics Finance Accounting Business and International Management |
| author_sort |
kempkes, jan a. |
| spelling |
Kempkes, Jan A. Wömpener, Andreas 1932-9156 Walter de Gruyter GmbH Strategy and Management Economics and Econometrics Finance Accounting Business and International Management http://dx.doi.org/10.1515/jbvela-2017-0009 <jats:title>Abstract</jats:title> <jats:p>Our study’s objective is to develop and analyze a dynamic approach for estimating firms’ expected cost of equity capital. We contribute to the literature by enabling the usage of any required estimation date, resolving the major shortcoming of the existing models—their reliance on one fixed estimation date. This paper presents our model and discusses it from the perspective of the extant body of literature. We show that the current state of the art approach in dynamic estimation does not satisfy theoretical and practical demands, and offers scope for significant improvements. We conduct our analysis by specially considering capital market efficiency, the consistent appreciation of cash flows with respect to timing, and straightforward practical implementation for researchers and practitioners. Building on semi-strong capital market efficiency, the analysis reveals further insights into residual income valuation as we demonstrate that any realization of residual income in the course of the year is irrelevant to valuation in the absence of dividend realization. Consequently, assumptions regarding the shape of earnings in the course of the year are also irrelevant to valuation. Additionally, our theoretically founded model conveniently facilitates the undistorted incorporation of different fiscal year-ends in large samples and avoids stale measures of expected cost of equity capital.</jats:p> Resolving the Reliance on Fixed Estimation Dates in the Implied Cost of Equity Capital Approach Journal of Business Valuation and Economic Loss Analysis |
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Resolving the Reliance on Fixed Estimation Dates in the Implied Cost of Equity Capital Approach |
| title_unstemmed |
Resolving the Reliance on Fixed Estimation Dates in the Implied Cost of Equity Capital Approach |
| title_full |
Resolving the Reliance on Fixed Estimation Dates in the Implied Cost of Equity Capital Approach |
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Resolving the Reliance on Fixed Estimation Dates in the Implied Cost of Equity Capital Approach |
| title_full_unstemmed |
Resolving the Reliance on Fixed Estimation Dates in the Implied Cost of Equity Capital Approach |
| title_short |
Resolving the Reliance on Fixed Estimation Dates in the Implied Cost of Equity Capital Approach |
| title_sort |
resolving the reliance on fixed estimation dates in the implied cost of equity capital approach |
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Strategy and Management Economics and Econometrics Finance Accounting Business and International Management |
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http://dx.doi.org/10.1515/jbvela-2017-0009 |
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2019 |
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|
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<jats:title>Abstract</jats:title>
<jats:p>Our study’s objective is to develop and analyze a dynamic approach for estimating firms’ expected cost of equity capital. We contribute to the literature by enabling the usage of any required estimation date, resolving the major shortcoming of the existing models—their reliance on one fixed estimation date. This paper presents our model and discusses it from the perspective of the extant body of literature. We show that the current state of the art approach in dynamic estimation does not satisfy theoretical and practical demands, and offers scope for significant improvements. We conduct our analysis by specially considering capital market efficiency, the consistent appreciation of cash flows with respect to timing, and straightforward practical implementation for researchers and practitioners. Building on semi-strong capital market efficiency, the analysis reveals further insights into residual income valuation as we demonstrate that any realization of residual income in the course of the year is irrelevant to valuation in the absence of dividend realization. Consequently, assumptions regarding the shape of earnings in the course of the year are also irrelevant to valuation. Additionally, our theoretically founded model conveniently facilitates the undistorted incorporation of different fiscal year-ends in large samples and avoids stale measures of expected cost of equity capital.</jats:p> |
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| description | <jats:title>Abstract</jats:title> <jats:p>Our study’s objective is to develop and analyze a dynamic approach for estimating firms’ expected cost of equity capital. We contribute to the literature by enabling the usage of any required estimation date, resolving the major shortcoming of the existing models—their reliance on one fixed estimation date. This paper presents our model and discusses it from the perspective of the extant body of literature. We show that the current state of the art approach in dynamic estimation does not satisfy theoretical and practical demands, and offers scope for significant improvements. We conduct our analysis by specially considering capital market efficiency, the consistent appreciation of cash flows with respect to timing, and straightforward practical implementation for researchers and practitioners. Building on semi-strong capital market efficiency, the analysis reveals further insights into residual income valuation as we demonstrate that any realization of residual income in the course of the year is irrelevant to valuation in the absence of dividend realization. Consequently, assumptions regarding the shape of earnings in the course of the year are also irrelevant to valuation. Additionally, our theoretically founded model conveniently facilitates the undistorted incorporation of different fiscal year-ends in large samples and avoids stale measures of expected cost of equity capital.</jats:p> |
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| spelling | Kempkes, Jan A. Wömpener, Andreas 1932-9156 Walter de Gruyter GmbH Strategy and Management Economics and Econometrics Finance Accounting Business and International Management http://dx.doi.org/10.1515/jbvela-2017-0009 <jats:title>Abstract</jats:title> <jats:p>Our study’s objective is to develop and analyze a dynamic approach for estimating firms’ expected cost of equity capital. We contribute to the literature by enabling the usage of any required estimation date, resolving the major shortcoming of the existing models—their reliance on one fixed estimation date. This paper presents our model and discusses it from the perspective of the extant body of literature. We show that the current state of the art approach in dynamic estimation does not satisfy theoretical and practical demands, and offers scope for significant improvements. We conduct our analysis by specially considering capital market efficiency, the consistent appreciation of cash flows with respect to timing, and straightforward practical implementation for researchers and practitioners. Building on semi-strong capital market efficiency, the analysis reveals further insights into residual income valuation as we demonstrate that any realization of residual income in the course of the year is irrelevant to valuation in the absence of dividend realization. Consequently, assumptions regarding the shape of earnings in the course of the year are also irrelevant to valuation. Additionally, our theoretically founded model conveniently facilitates the undistorted incorporation of different fiscal year-ends in large samples and avoids stale measures of expected cost of equity capital.</jats:p> Resolving the Reliance on Fixed Estimation Dates in the Implied Cost of Equity Capital Approach Journal of Business Valuation and Economic Loss Analysis |
| spellingShingle | Kempkes, Jan A., Wömpener, Andreas, Journal of Business Valuation and Economic Loss Analysis, Resolving the Reliance on Fixed Estimation Dates in the Implied Cost of Equity Capital Approach, Strategy and Management, Economics and Econometrics, Finance, Accounting, Business and International Management |
| title | Resolving the Reliance on Fixed Estimation Dates in the Implied Cost of Equity Capital Approach |
| title_full | Resolving the Reliance on Fixed Estimation Dates in the Implied Cost of Equity Capital Approach |
| title_fullStr | Resolving the Reliance on Fixed Estimation Dates in the Implied Cost of Equity Capital Approach |
| title_full_unstemmed | Resolving the Reliance on Fixed Estimation Dates in the Implied Cost of Equity Capital Approach |
| title_short | Resolving the Reliance on Fixed Estimation Dates in the Implied Cost of Equity Capital Approach |
| title_sort | resolving the reliance on fixed estimation dates in the implied cost of equity capital approach |
| title_unstemmed | Resolving the Reliance on Fixed Estimation Dates in the Implied Cost of Equity Capital Approach |
| topic | Strategy and Management, Economics and Econometrics, Finance, Accounting, Business and International Management |
| url | http://dx.doi.org/10.1515/jbvela-2017-0009 |