The expected cost of capital is a crucial component for most of the topics in corporate finance. Unfortunately in the presence of risky debt, it is systematically overestimated. This bias is increasing in leverage and the volatility of cash flows. We show the existence of the bias and assess its...

Most of the foundations of valuation theory have been designed for use in developed markets. Because of the greater, and in some cases different, risks associated with emerging markets (although recent experience might suggest otherwise), investors and corporate managers are often uncomfortable...