MEASURING THE COST OF CAPITAL IN AN INTERNATIONAL CAPM FRAMEWORK

This paper can be viewed as extending the traditional CAPM framework in two important ways. The first expands the concept of the market portfolio to include international securities. The second extends the definition of systematic risk to include currency risk.
What becomes clear in estimating the cost of capital for an international asset is that both extensions have become necessary if the traditional CAPM is to remain relevant. International markets have become increasingly integrated over the past two decades and so all assets might now be considered international and priced accordingly. The inclusion of the currency risk factor is not an ad hoc addition to the CAPM but rather results quite naturally from the fact that foreign returns need to be converted into a domestic currency.
Based on an examination of 18 companies, the article shows that the use of a broader market portfolio will tend to lower the estimated cost of capital for most firms, but in some cases could actually raise it. (In the case of Singapore Airlines, for example, the currency risk factor adds substantially to the cost of capital, while materially reducing it in the case of Nestlé.) Using a simple regression, the authors also attempt to show how the specifics of a particular company—for example, the currencies that are part of their cost/ revenue structure—determine the impact of currency risk on the cost of capital.     

THE RELATIONSHIP BETWEEN DIVIDEND CHANGES AND CASH FLOW: AN EMPIRICAL ANALYSIS

It is often assumed that cash flow affects dividend payout. This study provides evidence on the incremental information content of cash flow numbers over Profits and Previous Year's Dividends (Lintner's model) in explaining changes in cash dividends. It further examines whether different measures of cash flow differ in information content for dividend-increasing and dividend-decreasing firms. Lintner's model of dividend changes is robust across firms with either dividend increases or decreases. The null hypotheses, that no definition of cash flow adds to the model, could not be rejected for any of the definitions.     

ACCOUNTING FOR THE COST OF CAPITAL: AN EMPIRICAL EXAMINATION

One of accounting's oldest issues, accounting for interest costs, has become a subject of increased concern in recent years. This study empirically addresses the issue of whether the cost of equity capital should be charged against income. Fourteen measures of the cost of equity capital are examined. The empirical tests involve contemporaneous correlation of accounting betas for each income measure with market betas for a sample of 200 companies. The results of these association tests indicate that income measures, net of the cost of equity capital, may have greater information content than income as presently reported.     

THE MARKET REACTION TO STRAIGHT DEBT ISSUES: THE EFFECTS OF FREE CASH FLOW

In this paper we measure the market reaction to 937 straight debt issues between 1983 and 1993. We find a negative and significant market reaction to a straight debt announcement. In addition, we find that the market reaction to a straight debt issue is directly related to the issuing firm's level of existing cash and inversely related to the issuing firm's investment opportunities.     

THE COST OF CAPITAL OF A COMPANY UNDER AN IMPUTATION TAX SYSTEM

One of the issues arising out of the introduction of an imputation tax for companies in Australia is the effect it is likely to have on the definition and measurement of a company's cost of capital. Insofar as there is a difference between the value of a dollar of franked relative to unfranked dividends, conventional definitions for the cost of capital are inappropriate and new definitions are required. This has implications for the measurement of a company's cost of capital and for the definition of net cash flows that are used in conjunction with the cost of capital. This paper sets out these definitions and an approach for measuring the cost of capital. The new definition of the cost of capital replaces the effective company tax rate T with T(l - γ) where γ is the value of personal tax credits. Further, the definition of the risk premium in the capital asset pricing model requires an adjustment for the capitalized value of personal tax credits to maintain consistency between the cost of capital and cash flows which are defined on an after-company tax but before-personal tax basis.     

21世纪国际资本流动新格局与我国利用外资前景

世纪之交,全球经济金融格局出现重大调整,亚洲金融危机、欧元问世、美国经济持续打破"繁荣-衰退周期",种种现象无不与资本的跨国界流动息息相关.二战结束后,资本流动历经了欧洲资本时期、石油美元时期、债务危机时期,最后进入全球化流动阶段.全球化形成了全新的资本流动格局,对于国际货币体系和各国金融管理当局管理资本的超常波动以及重新调整宏观经济政策提出许多新的挑战.改革开放以来,利用外资成为推动我国经济快速发展的主要因素,而资本全球化流动的总体背景要求,我国必须在利用外资政策、外汇管理政策以及货币政策与汇率政策的配合等方面做出相应调整,以应对资本流动全球化的挑战.     

对我国商业银行资本金问题的认识

在中国面临加入WTO之际,商业银行的资本金问题成为我国商业银行能否适应国际、国内金融形势发展变化要求的一个焦点问题。本文从国际社会如何衡量、测算商业银行的资本金以及商业银行资本充足率的标准出发,通过对我国商业银行,特别是国有商业银行资本金状况的分析,找出我国商业银行资本金结构和补充资本金来源中存在的问题。作者从近期和远期两个方面着手提出了解决我国商业银行资本金问题的主要途径和对策建议,即近期通过国家补充、剥离不良资产、加快国有银行商业化、建立监测激励机制、提高呆账准备金比率的方法;远期实施国有商业银行的产权制度改革和增强我国商业银行的盈利能力的途径。     

THE MEASUREMENT OF A FIRM'S COST OF CAPITAL

The relevance of a firm's cost of capital in its investment decisions is widely recognised. The concept and associated issues have been and are likely to be increasingly important in the regulatory activities of government and semi-government bodies, e.g. prices regulation, profit regulation for semi-government enterprises, antitrust and takeover regulation. This paper outlines the principles involved in estimating a firm's before-tax and after-tax cost of capital. The paper also suggests practical approaches that may be taken when difficulties arise in estimating parameters to the problem.