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Evaluating Methods to Estimate the Implied Cost of Equity Capital: A Simulation Study
Daske, Holger
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Maug, Ernst
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Halteren, Jörn van
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URL:
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https://ub-madoc.bib.uni-mannheim.de/31593
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Weitere URL:
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http://ssrn.com/abstract=1465294
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URN:
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urn:nbn:de:bsz:180-madoc-315933
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Dokumenttyp:
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Arbeitspapier
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Erscheinungsjahr:
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2010
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Ort der Veröffentlichung:
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Rochester, NY
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Sprache der Veröffentlichung:
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Englisch
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Einrichtung:
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Fakultät für Betriebswirtschaftslehre > ABWL u. Corporate Finance (Maug 2006-)
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Fachgebiet:
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330 Wirtschaft
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Fachklassifikation:
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JEL:
C15 , E37 , M41,
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Freie Schlagwörter (Englisch):
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Implied cost of capital , valuation , residual income , abnormal earnings growth , simulation
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Abstract:
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We evaluate accounting-based methods to estimate the implied cost of capital using a simulation approach. We simulate a model economy in which the true cost of capital is known and calibrate it to the CRSP-Compustat universe. We then compare the true cost of capital to the implied cost of capital estimates from ten different methods proposed in the literature in terms of bias, accuracy, and their correlation with the true cost of equity capital. Methods based on the residual income model perform better than those based on the abnormal earnings growth model. Methods that estimate the cost of capital and expected growth simultaneously work reasonably well if they rely on analyst forecasts instead of ex post realized values, even if analyst forecasts are biased. We suggest combined methods that are chosen so that the distortions from individual methods compensate each other and show that some simple combinations outperform all individual methods.
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 | Das Dokument wird vom Publikationsserver der Universitätsbibliothek Mannheim bereitgestellt. |
 Suche Autoren in
BASE:
Daske, Holger
;
Maug, Ernst
;
Halteren, Jörn van
Google Scholar:
Daske, Holger
;
Maug, Ernst
;
Halteren, Jörn van
ORCID:
Daske, Holger, Maug, Ernst  ORCID: https://orcid.org/0000-0002-2866-6926 and Halteren, Jörn van
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