Valuation and Cost of Capital Formulae with Corporate and Personal Taxes: A Synthesis Using the Dempsey Discounted Dividends Model

This paper advances expressions for the firm's valuation and cost of capital as a function of leverage. The framework is arrived at by introducing leverage in Dempsey's (1996 and 1998) cost of capital framework and is applicable in the context of both classical and imputation tax systems. The framework reveals that both the historical stability of corporate leverage and the firm's choice of financing structure as revealed by the Pecking Order hypothesis are consistent with a tax-based explanation.     

The Cost of Equity Capital at the Corporate and Investor Levels Allowing a Rational Expectations Model with Personal Taxations

This paper argues that the conventional definition of the cost of equity at the corporate level is likely to be fundamentally flawed under conditions of personal taxation. A 'dimensionally consistent' definition is developed utilising the pioneering contributions of Auerbach and Elton and Gruber. Consequent benefits are straight-forward expressions for the cost of equity capital at the corporate level (for both retained earnings and new equity) as well as at the investor level (post personal tax) in terms of both the dividend discount and CAPM-type models, which are applicable to classical and imputation tax systems. A fundamental framework is thereby provided which succeeds in illuminating investor pesonal tax liabilities as they might be expected to impact on a firm's investment and related dividend policies.     

Taxes and production: The case of Pakistan

This paper investigates the effectiveness of investment incentives and corporate income taxes in influencing production and investment decisions in the Pakistani wearing apparel and leather products industries. Three tax instruments are considered: the corporate income tax (CIT), the investment tax credit (ITC), and the capital cost allowance (CCA).The results show that since there are significant capital adjustment costs, it is important to distinguish between the short, intermediate, and long-run effects associated with the tax instruments. Production decisions are relatively more responsive to changes in the ITC rate compared to changes in either CCA or CIT rates in each run. However, only in the long run for the apparel industry are the ITC and CCA rates cost effective in stimulating investment. The CIT is never cost effective. Thus targeted instruments outperform the general CIT instrument. In addition, although the incentive to invest is enhanced, there is little effect on output. Therefore, tax incentives essentially make production techniques more capital intensive.     

The Impact of Dividends, Debt and Investment on Valuation Models

The reliability of a basic earnings and equity model of value is tested using 8,287 cases drawn from UK industrial and commercial firms reporting during 1987–1995. A respecification of this model is used to investigate the value relevance of dividends, capital structure and capital expenditure. Both the dividend and capital expenditure signals appear to be significant and the impact of the former is surprisingly strong. There is no convincing evidence that equity value is affected by the level of debt. Further investigation of dividends confirms that they are less influential in large firms or in firms with high return on equity.     

Taxation, Uncertainty, and the Cost of Equity

Traditionally the pre-tax cost of capital is a function of the interest rate and the tax system. However, uncertainty implies that the market's required return is no single interest rate, but depends on risk. Different tax systems split risk differently between firm and government. Thus the required expected return after corporate taxes depends on the tax system. Expressions for this are derived, based on a CAPM-type model. The weighted average cost of capital is decreasing in the tax rate, even for fully equity financed projects. This effect can be substantial, but is neglected in much of the literature.     

Inferring the Cost of Capital Using the Ohlson–Juettner Model

We compare risk premia (RP) inferred using the Ohlson-Juettner (RP_OJ) and residual income valuation (RP_RIV) models in three ways: (1) correlation with risk factors; (2) correlation with RP estimated by multiplying current realizations of risk factors by coefficients obtained from regressing prior-year RP on prior-year risk factors; and (3) correlation with ex post returns. RP_OJ has expected correlations with risk factors, a modest correlation with RP estimated from prior-year regressions, and an economically significant association with ex post returns. RP_RIV has generally higher correlations, but regression coefficients are sensitive to whether the industry median ROE is computed with or without loss firms.     

The Theory-Practice Gap in Capital Budgeting: Evidence from the United Kingdom

We report the results of a survey of capital budgeting techniques used by United Kingdom firms. Where possible, the evidence is combined with data collected over a 22 year period to provide a basis for the discussion of causes of trends. We observe that there has been a substantial narrowing of the theory-practice gap in the use of project appraisal methods. The gap has also narrowed in other areas: the analysis of risk, inflation adjustment, capital budget preparation, WACC calculation and post-auditing. However, there are other elements of capital budgeting theory, e.g. probability and beta analysis which have been adopted by very few practising managers. We also discuss non-economic projects, capital rationing and hurdle rates.     

Disclosure Interactions and the Cost of Equity Capital: Evidence From the Spanish Continuous Market

Abstract:  The purpose of this paper is to provide some new evidence on the relationship between disclosure and the cost of equity capital. We propose a new specification for the empirical test based on the idea that in the previous models one crucial variable was missing: accounting policy choice. We test our theoretical hypothesis using a sample of Spanish firms quoted on the Spanish continuous market from 1999 to 2002. We adopt the ex-ante approach to measure the cost of equity capital, taking analysts predictions as a proxy for expected earnings. As an explanatory variable we use an index measuring annual report disclosure quality. This measure of disclosure is combined with a proxy for the accounting policy choice of the firm. We measure firms' conservatism using the modified Jones model of Dechow et al. (1995) to estimate discretionary accruals. Our results confirm that the relationship between disclosure and cost of capital is affected by the choice of accounting policy.     

吸收风险投资对企业投资效率的影响研究——基于创业板的数据研究

以创业板上市公司为研究对象,就初创公司上市后是否吸收风险投资、吸收风险投资的比例以及是否存在风险投资机构的联合投资展开实证研究.结果 表明:公司上市后风险投资参与仍可以显著提高企业的投资效率,风险投资比例越高,越有利于提高投资效率,联合投资也对此有正向促进作用.     

投资项目风险、外部性与投资资本内部定价

从业绩评价角度,以委托代理理论作为分析工具,研究投资项目风险、外部性对投资资本内部定价的影响。研究结论表明:投资资本的最优内部"价格"与用于决策的企业资本成本一般不同,投资项目风险、外部性对其有重要影响;当平均投资收益率等于边际投资收益率时,只有投资项目风险对投资资本内部定价有影响;投资失败的赔偿制相比有限责任制,会减弱投资项目风险和外部性对投资资本"定价"的影响。这一研究为正确地制定投资资本的内部价格和合理地评价投资业绩提供了理论基础。     

Growth Opportunities and Investment Decisions: A New Perspective on the Cost of Capital

This paper shows that it is not always correct to make an upward adjustment to the stock beta in calculating the hurdle rate for capital budgeting even when the project under consideration is riskier than existing assets. The paper also shows that the correct hurdle rate is smaller than the market capitalization rate calculated from the firm's stock beta when the project under consideration has the same risk as existing assets. In addition, it is shown that the market capitalization rate will be an underestimate (overestimate) of the correct hurdle rate when the risk of future assets is greater (smaller) than both the risk of assets in place and that of future capital expenditures. These new results are direct consequences of the insight that the firm's investment opportunities are in fact real call options written on underlying assets.     

The Effect of Regulatory Announcements on the Cost of Equity Capital of British Telecom

This paper examines the impact of regulatory announcements which affect competition, pricing policy and the supply of services in the telecommunications industry on British Telecom's (BT) systematic risk, as measured by the beta coefficient of a market model. Changes in investors' perception of a company's systematic risk will of course also change its cost of equity capital. Since BT's beta coefficient is found to be unstable over the estimation period, the market model is estimated using a time-varying parameter model. The results suggest that announcements which allow the price of BT's services to increase and announcements affecting its supply of services are likely to have an impact on BT's cost of equity capital, since they affect the investor's perception of BT's systematic risk. However, our analysis does not detect any effect from the other types of announcements tested. Further examination of the individual announcements included in the groups reveals that, within the non-significant groups, many individual announcements are significant, but they affect beta in opposite directions and thus no prediction can be made on the sign of their aggregated impact. These findings suggest that when one company dominates the industry, such as in the case of the UK telecommunications industry, the actions of the regulator do not always have the expected effect and problems of regulatory capture are likely to be present.     

企业信用行为与失信惩戒机制：一个基于信用资本的分析框架

本文通过一个基于代表性企业与银行之间的博弈模型,讨论了信用资本的性质、价值度量及其对企业借贷行为的影响。文章认为,信用资本的性质与价值量将会影响到企业的财务与融资决策行为。信用信息共享为降低银行信贷风险、扩大信贷规模提供了一个基础设施,而有效的失信惩戒机制在其中起着关键作用。因此,我国应尽快建立包含有效的守信激励和失信惩戒机制的信用信息共享体系,这也可看作是对我国信用体系建设热潮的一个理论解释。     

Disclosure and the Cost of Capital: Evidence from the Market's Reaction to Firm Voluntary Adoption of IAS

Abstract:  Using a unique international setting where the effects of disclosure on firm value can be measured in a constant regulatory environment and in isolation of other confounding factors, this paper shows that firms can increase their value through their choice of accounting standards. Specifically, we document strong positive abnormal returns at the announcement of voluntary adoption of International Accounting Standards (IAS / IFRS) by a sample of international firms and an economically significant reduction in long-run returns, consistent with a reduction in the cost of capital. Consistent with these results we also document evidence of an upgrade in analyst recommendations after the IAS / IFRS adoption announcement and a reduction in the implied cost of capital. Finally, we find strong evidence that the documented abnormal returns are consistent with signaling and bonding benefits stemming from the reduction in asymmetric information. Our results highlight the importance of increased disclosure on minority shareholder protection and on corporate governance in general.     

投资银行业经理人估值与分配机制研究——基于多层次的利益相关者分析框架

现阶段我国投资银行经理人的估值与薪酬考核面临如下困境:一方面由于某种错觉,社会普遍认为投行经理人的收入远远高于合理水平;但另一方面,经理人的实际薪酬水平与其他行业以及国外同行相比明显偏低,投行经理人的激励严重不足。立足于我国现有制度现实,应该寻找一种渐进的、与现有制度安排协调的投行经理人估值与分配模式。本文基于利益相关者分析框架考察了投行经理人的估值与分配机制,运用模型从环境分析、组织模式和方法体系三个递进的层次对经理人的业绩评价进行了系统分析,从理论上对我国投资银行经理人的估值模型进行了开拓性研究。     

"国有股划拨社保基金"及"社保基金海外投资"政策的经济效应——基于文字表述的一般均衡模型分析

“国有控股上市公司划拨部分国有股充实全国社保基金”和“全国社保基金海外投资”引人瞩目,全国社保基金运营(包括筹集、保值增值)的经济效应(经济增长效应和再分配效应)研究愈显重要。本文运用文字表述的一般均衡模型分析说明:全国社保基金长期持有部分国有股、社保基金海外投资分别通过“降低代际企业所有权的转移成本”和“资本市场专门人才培育、社保基金保值增值”两条传导途径促进经济均衡增长(增长效应),增加劳动者和退休人的福利(再分配效应)。建议加快“划拨国有股充实社保”步伐,减少全国社保基金国内投资、加大海外投资比重,加强对海外投资的有效监管。