Cost of Equity Capital and Accounting-based Drivers of Risk

According to the Capital Asset Pricing Model (CAPM), the only risk factor that investors should take into account in making their decisions is the systematic risk (β). Several studies have shown that the market risk (β) is not the only risk factor affecting the expected rate of return and there are...

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Autores principales:	Ali Saghafi, Ali Rahmani, Majid Motamedi Fazel
Formato:	article
Lenguaje:	FA
Publicado:	Shahid Bahonar University of Kerman 2012
Materias:	risk cost of equity capital residual income model accounting fundamentals Accounting. Bookkeeping HF5601-5689
Acceso en línea:	https://doaj.org/article/fd03bccda6e04b478ea55b7e0423286b
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spelling	oai:doaj.org-article:fd03bccda6e04b478ea55b7e0423286b2021-11-04T19:40:22ZCost of Equity Capital and Accounting-based Drivers of Risk2008-89142476-292X10.22103/jak.2012.45https://doaj.org/article/fd03bccda6e04b478ea55b7e0423286b2012-06-01T00:00:00Zhttps://jak.uk.ac.ir/article_45_65e2110c6bf78ba9acddebf73c0040f5.pdfhttps://doaj.org/toc/2008-8914https://doaj.org/toc/2476-292XAccording to the Capital Asset Pricing Model (CAPM), the only risk factor that investors should take into account in making their decisions is the systematic risk (β). Several studies have shown that the market risk (β) is not the only risk factor affecting the expected rate of return and there are other risk factors different to β. This paper analyzes the relevance of accounting fundamentals to inform about equity risk as measured by the cost of equity capital. Considering the cost of equity capital is a summary measure of how investors make decisions regarding the allocation of resources, the strength of the association between the cost of equity and accounting-based measures of risk, indicates how important these measures are for market participants when making economic decisions. In this study, for estimating the cost of equity, three models O'Hanlon and Steel, Gordon and Capital asset pricing are used. Also, to test assumptions, regression method has been employed. The sample refers to 66 firms accepted in Tehran Stock Exchange along the period 1997–2008. Research results support the association between the cost of equity capital and some accounting-based risk variables, thereby supporting the usefulness of fundamental analysis to determine the risk.Ali SaghafiAli RahmaniMajid Motamedi FazelShahid Bahonar University of Kermanarticleriskcost of equity capitalresidual income modelaccounting fundamentalsAccounting. BookkeepingHF5601-5689FAمجله دانش حسابداری, Vol 1, Iss 2, Pp 9-32 (2012)
institution	DOAJ
collection	DOAJ
language	FA
topic	risk cost of equity capital residual income model accounting fundamentals Accounting. Bookkeeping HF5601-5689
spellingShingle	risk cost of equity capital residual income model accounting fundamentals Accounting. Bookkeeping HF5601-5689 Ali Saghafi Ali Rahmani Majid Motamedi Fazel Cost of Equity Capital and Accounting-based Drivers of Risk
description	According to the Capital Asset Pricing Model (CAPM), the only risk factor that investors should take into account in making their decisions is the systematic risk (β). Several studies have shown that the market risk (β) is not the only risk factor affecting the expected rate of return and there are other risk factors different to β. This paper analyzes the relevance of accounting fundamentals to inform about equity risk as measured by the cost of equity capital. Considering the cost of equity capital is a summary measure of how investors make decisions regarding the allocation of resources, the strength of the association between the cost of equity and accounting-based measures of risk, indicates how important these measures are for market participants when making economic decisions. In this study, for estimating the cost of equity, three models O'Hanlon and Steel, Gordon and Capital asset pricing are used. Also, to test assumptions, regression method has been employed. The sample refers to 66 firms accepted in Tehran Stock Exchange along the period 1997–2008. Research results support the association between the cost of equity capital and some accounting-based risk variables, thereby supporting the usefulness of fundamental analysis to determine the risk.
format	article
author	Ali Saghafi Ali Rahmani Majid Motamedi Fazel
author_facet	Ali Saghafi Ali Rahmani Majid Motamedi Fazel
author_sort	Ali Saghafi
title	Cost of Equity Capital and Accounting-based Drivers of Risk
title_short	Cost of Equity Capital and Accounting-based Drivers of Risk
title_full	Cost of Equity Capital and Accounting-based Drivers of Risk
title_fullStr	Cost of Equity Capital and Accounting-based Drivers of Risk
title_full_unstemmed	Cost of Equity Capital and Accounting-based Drivers of Risk
title_sort	cost of equity capital and accounting-based drivers of risk
publisher	Shahid Bahonar University of Kerman
publishDate	2012
url	https://doaj.org/article/fd03bccda6e04b478ea55b7e0423286b
work_keys_str_mv	AT alisaghafi costofequitycapitalandaccountingbaseddriversofrisk AT alirahmani costofequitycapitalandaccountingbaseddriversofrisk AT majidmotamedifazel costofequitycapitalandaccountingbaseddriversofrisk
_version_	1718444689786404864

Cost of Equity Capital and Accounting-based Drivers of Risk

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