Differences in the Cost of Capital: The Case of Food Companies From Emerging and Developed European Economies

Mądra-Sawicka, Magdalena

doi:10.22630/aspe.2020.19.3.27

Cited by 2 publications

(1 citation statement)

References 19 publications

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“…The WACC method is more comparable when it concerns the same segment or industry. However, younger markets with shorter histories are characterized by a higher cost of capital [77]. The WACC concept is also widely used in energy cost technology identification [78].…”

Section: Energy Companies On Capital Marketsmentioning

confidence: 99%

Energy Sector Risk and Cost of Capital Assessment—Companies and Investors Perspective

2021

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This paper aims to identify the costs of capital in a group of companies from the energy sector by including an investor and market risk approach. The study also concerns the company’s Weighted Average Cost of Capital (WACC) cost intra-industry analysis related to sector characteristics such as total assets, revenues, market capitalization, and companies’ age. In order to assess the intergroup relationships, basic correlation relationships were compared and a nonparametric test of variance was performed. The period under study covered the years 2015–2019. The conducted research evaluates groups of companies that dedicated their activity to a particular energy intra-industry division under numerous regulations in Europe. The study contributes to assessing the level of risk among energy listed companies in European capital markets based on capital structure valuation. The study results underline the role of the cost of equity financing, which was twice as high as the cost of debt. The highest WACC was related to the Beta indicator that also expressed the political and regulatory risk over the investigated period. Across debt cost analysis, the role of effective tax rate decreased the level of WACC. The highest level of WACC was noticed among uranium and integrated oil and gas companies. The study contributes to information asymmetry theory related to the cost of capital assumptions.

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Section: Energy Companies On Capital Marketsmentioning

confidence: 99%

Energy Sector Risk and Cost of Capital Assessment—Companies and Investors Perspective

2021

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The Weighted Average Cost of Capital and Its Universality in Crisis Times: Evidence from the Energy Sector

et al. 2022

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Recent economic anomalies, including the unprecedented lockdown generated by the COVID-19 crisis, have demonstrated that the weighted average cost of capital (WACC) remains an actual topic in the financial literature and in practice. Companies operate in an increasingly volatile environment, due to twin transitions and interlinked crises, and so they must have specific tools for measuring risk and profitability, in order to enable them to have a sound financial policy. Based on the earlier results obtained by Modigliani and Miller (1963), Harris and Pringle (1985), and Farber, Gillet, and Szafarz (2006), this study shows the relationship between WACC and interest rate. It offers a modified WACC formula that considers unstable market circumstances. The new redefined WACC can be a valuable tool in business planning for companies from different fields. The companies in the energy sector are very interested in the topic of WACC, considering not only the complex nature of the investments made and the long-term nature of investment recovery but also the multiple risks that have an impact on their activity and that can be found in different economic, social, and geopolitical spheres.

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Differences in the Cost of Capital: The Case of Food Companies From Emerging and Developed European Economies

Cited by 2 publications

References 19 publications

Energy Sector Risk and Cost of Capital Assessment—Companies and Investors Perspective

Energy Sector Risk and Cost of Capital Assessment—Companies and Investors Perspective

The Weighted Average Cost of Capital and Its Universality in Crisis Times: Evidence from the Energy Sector

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