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 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.     

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.     

RETURN OF CAPITAL: CASH FLOW,WEALTH TRANSFER AND INFORMATION SIGNALLING EFFECTS

This paper examines the price effects of an announcement to distribute cash to shareholders via the return of capital procedure currently applying under Australian company law. The impact of such announcements on the market value of ordinary shares is analysed in terms of three hypothesised effects: the cash flow effect, the wealth transfer effect and the information signalling effect. Using data from 17 companies which announced a return of capital between 1970–1978, and applying the “comparison period” methodology, significant positive returns were observed at the time of the announcement of a return of capital. Possible explanations for this result are considered.     

国际金融衍生品市场分析

自1848年美国第一个期货交易所（芝加哥期货交易所）创立至今,衍生品市场已经有了160多年的历史。而纵观这160多年的发展历程,我们能清晰的认识到它的发展并不是一帆风顺。就像任何其他新生事物的出现一样,都需要经历一个由被怀疑到被认可、不成熟到成熟的过程。早期的衍生品市场因为缺乏制度的规范遭受过投机商的挑战,还曾数度被政府法令限制交易。     

A NOTE ON THE MARGINAL COST OF DEBT CAPITAL

The firms marginal cost of debt capital was interpreted in this author's previous publications as the "full marginal cost of relaxing the money capital availability constraint' when the incremental money capital employed takes the form of debt capital. Account is thereby taken of the effects on financing costs of the increased risk exposure that debt financing implies for both debt and equity holders. The present paper clarifies a misconception in a recently published paper by Draper and Findlay, and exhibits the linkage between concepts relevant to the firm's fmancing decision and the general marginal analysis.     

THE LIQUIDITY ROUTE TO A LOWER COST OF CAPITAL

The managements of many public companies do not pay much attention to the liquidity of their securities. Many if not most CEOs and CFOs feel powerless to affect what goes on in financial markets, and a common attitude among top executives is that maintaining liquidity is the concern of the securities exchanges and the Securities and Exchange Commission. This approach may work for those companies whose stocks are already highly liquid—a group made up mainly of large‐cap companies, as well as a number of smaller high‐flying, high‐tech firms. But, for the vast majority of public companies—especially smaller and mid‐sized firms—this is likely to be the wrong policy. As the authors of this article demonstrated in their pioneering study (published in the Journal of Financial Economics in 1986), liquidity appears to be a major determinant of a company's cost of capital. As their theory suggests and their empirical tests confirmed, the more liquid a company's securities, the lower its cost of capital and the higher its stock price. And, as discussed in this article, academic research since then has produced a large and impressive body of evidence linking greater liquidity to higher stock prices. Although recent technological innovations such as Internet‐based trading have increased liquidity generally, not all companies appear to have benefited equally. The authors offer a number of suggestions for companies intent on increasing the liquidity of their stock. Specifically, they propose that managers do the following: (1) consider measures, such as stock splits, designed to increase their investor base by attracting small investors; (2) seek trading venues for their securities that promise to increase liquidity; and (3) take advantage of the new Internet technology to provide more and better information to investors. Moreover, for smaller companies with little or no analyst coverage, the authors offer the radical suggestion that such companies actually pay analysts to cover their stock, much as companies pay Moody's or Standard & Poors to rate their bonds. This, in the authors' view, would be a more efficient alternative to the current practice of using stock splits to encourage intermediaries to make markets in the firm's shares.