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This study examines the role of market efficiency on international differences in the usefulness of the implied cost of capital (ICC) to measure expected stock returns. The analysis exploits cross-country differences in market efficiency around the world using a variety of empirical measures of...
Persistent link: https://www.econbiz.de/10012852872
Patents valuation methods are mostly income or income-market-based. In these methods one of the key estimate is the cost of capital. The paper analyses the question of the patents cost of capital from two complementary viewpoints: (i) theoretical aspects of estimating the cost of capital for...
Persistent link: https://www.econbiz.de/10012938049
As the proxy for expected return, the implied cost of capital (ICC) is subject to a mispricing-driven measurement error because the price of a stock used to compute ICC can deviate from its intrinsic value. For undervalued stocks, the mispricing-driven measurement error is positive and increases...
Persistent link: https://www.econbiz.de/10012901012
We hypothesize that earnings downside risk, capturing the expectation for future downward operating performance, contains distinct information about firm risk and varies with cost of capital in the cross section of firms. Consistent with the validity of the earnings downside risk measure, we...
Persistent link: https://www.econbiz.de/10013020544
We use the residual-income valuation model to simultaneously estimate firm-specific implied long-term growth rate in abnormal earnings and cost of capital by relating earnings-to-price and book-to-market ratios in a linear fashion. This simple framework estimates investors' consensus beliefs...
Persistent link: https://www.econbiz.de/10014064918
As the proxy for expected return, the implied cost of capital (ICC) is subject to a mispricing-driven measurement error. For undervalued stocks, the mispricing-driven measurement error is positive and increases with the degree of undervaluation while for overvalued stocks, the mispricing-driven...
Persistent link: https://www.econbiz.de/10012859834
The implied cost of capital (ICC), the internal rate of return that equates speculative stock price to discounted expected future dividends, includes a mispricing-driven component in addition to expected return. The estimated relation of a mispricing-associated factor (X) with ICC is thus a...
Persistent link: https://www.econbiz.de/10012839261
This paper examines the effect of income smoothing on information uncertainty, stock returns, and cost of equity. I show that income smoothing through both total accruals and discretionary accruals tends to reduce firms' information uncertainty, as measured by stock return volatility, analyst...
Persistent link: https://www.econbiz.de/10012938674
We evaluate the influence of measurement error in analysts' forecasts on the accuracy of implied cost of capital estimates from various implementations of the ‘implied cost of capital' approach, and develop corrections for the measurement error. We document predictable error in the implied...
Persistent link: https://www.econbiz.de/10013114798
This article investigates how a firm's financial strength affects its dynamic decision to invest in R&D. We estimate a dynamic model of R&D choice using data for German firms in high-tech manufacturing industries. The model incorporates a measure of the firm's financial strength, derived from...
Persistent link: https://www.econbiz.de/10013002220