The cost of capital- the practitioners view
To many practitioners, serious doubts exist about various aspects of the application of CAPM to the investment decision. This is especially so with respect to the cost of equity, where varying possible specifications of beta due to different observation periods leave many unconvinced. Is the beta a satisfactory measure of risk? And is it correct that only market risk matters? The practitioner is sceptical on these points and equally so of the plethora of advice received on the magnitude of the equity premium. With respect to financing, the thoughtful practitioner finds it disappointing that estimates of the cost of capital are little used in developing the company's funding strategy - including dividend policy. The pecking order hypothesis leaves us with no optimal capital structure. It merely tells us the way firms typically behave. Thinking practitioners continue to await the fully comprehensive theory of corporate finance that is wholly applicable in solving their problems. Maybe practitioners have to work harder at understanding, selling and applying the more intricate teachings of modern corporate finance but their patience is often tried by unworldly and conflicting prescriptions.
Year of publication: |
1999
|
---|---|
Authors: | Clements, Alan |
Published in: |
The European Journal of Finance. - Taylor & Francis Journals, ISSN 1351-847X. - Vol. 5.1999, 3, p. 247-255
|
Publisher: |
Taylor & Francis Journals |
Subject: | Investment | Financing | Theory | Practitioner |
Saved in:
Online Resource
Saved in favorites
Similar items by subject
-
Rethinking project practice : emerging insights form a series of books for practitioners
Dalcher, Darren, (2016)
-
Lemons models of professional labor markets reconsidered
Ryoo, Jaewoo, (1996)
-
Rethinking project practice: emerging insights from a series of books for practitioners
Dalcher, Darren, (2016)
- More ...