Estimating the Cost of Equity Capital: An Empirical Analysis in the Tunisian Context

Dakhlaoui, Mejda; Gana, Marjène Rabah

doi:10.5430/afr.v4n2p110

“…Moreover, the firm size seems to affect it positively. This result is consistent with the sign of the average size premium found in Dakhlaoui and Gana (2015).…”

Section: Ownership Structure and Cost Of Equity Capital: Linear Vs Nonlinear Relationshipssupporting

confidence: 91%

“…Based on the criticisms addressed to the ex ante measures of the cost of equity and problems to meet the conditions of their application, especially in the context of emerging countries such as Tunisia, we choose the use an ex post measure of the COE. Referring to the study of Dakhlaoui and Gana (2015), we select the four factor pricing model (FFPM) developed by Carhart (1997). Thus, the monthly annualised cost of equity capital is estimated for each company in accordance to the following formula: 1 ( )…”

Section: Dependant Variable: Cost Of Equity Capital (Coe)mentioning

confidence: 99%

Ownership structure and cost of equity capital: Tunisian evidence

Dakhlaoui

¹

,

Gana

²

2020

IJBGE

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This paper aims to examine the effect of ownership structure on the cost of equity capital in the Tunisian context. Using panel data, the study provides evidence for a negative relationship between ownership concentration and cost of equity capital. However, most ownership composition variables validate the entrenchment effect. Results show an inverted U-shaped relationship between institutional ownership, foreign ownership and cost of equity capital. However, a U-shaped relationship is found between state ownership and the dependent variable. To alleviate endogeneity concerns and establish that the results are robust, the authors re-estimated the regressions using a dynamic approach. It supports the entrenchment effect of ownership concentration. A U-shaped relationship between this variable and the cost of equity capital is confirmed. However, a concave relationship is found when considering ownership composition variables. As for family ownership, the results from static and dynamic approaches are convergent and in favour of entrenchment effects.

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“…This implies that a unit change in Cost of Earnings leads to an increase in susceptibility to bankruptcy by 0.17 units while holding Cost of Debt, Debt-Equity Ratio and Retained Earnings constant. These findings were in support of (Dakhlauil & Gana, 2015;Foong & Goh, 2013), who found positive and significant relationship between Cost of Equity and Susceptibility to Bankruptcy…”

Section: Findings Descriptive Analysissupporting

confidence: 83%

“…Examined the role of firm specific interest payments as measured by the interest burden in determining firms survival basing on firm level data for the UK from a period of 2000 to 2009 and found out that there is a strong link between debt servicing cost and firm survival, high levels of debt increases firms chances of getting into financial crisis. Dakhlauil & Gana (2015) estimated the cost of equity capital in the Tunisian stock market where they used a sample of 26 firms listed in the Tunisian stock market from 2003 to 2010 where they conducted a comparative analysis between the CAPM and the three factor model of Fama and French (1993). The results indicated that the four factor model is the bect to capture the change in portfolio returns during the same period even though the four factor models don't explain the returns of all portfolios and a significant positive relationship is set forth between excess returns and market risk premium.…”

Section: Empirical Reviewmentioning

confidence: 99%

Effect of Capital Mix on Susceptibility to Bankruptcy of Companies Listed in the Nairobi Security Exchange

RATEMO

2018

strategicjournals.com

0

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This study sought to examine the effect of capital mix of companies listed in Nairobi Stock Exchange and their susceptibility to bankruptcy. The objectives guiding the study included cost of debt, cost of equity, debt-equity and return on equity on listed companies susceptibility to bankruptcy. Literature review included the theoretical framework guiding through the theories that supported the study variables namely financial theory of investment, option theory, Trade-off Theory, pecking order Theory and the Altman Model, the conceptual framework followed by the empirical studies that existed. The study used descriptive research design to investigate the effect of independent variables on the dependent variable. The study also used stratified and simple random sampling methods where the sampling frame was the best performing companies in NSE and the least performing including those with liquidity issues where secondary data was used and analyzed using STRATA. The study found that Susceptibility to Bankruptcy of listed companies could be jointly explained by Cost of Debt, Cost of Equity, Debt-Equity Ratio and Retained Earnings. Cost of Debt had positive and significant relationship with Susceptibility to Bankruptcy whereas the study revealed positive and significant relationship between Cost of Equity and Susceptibility to Bankruptcy for listed companies. Thirdly, listed companies were mostly financed using Debt and Equity. The level of Debt-Equity had a positive and significant relationship it implied that borrowed capital was invested into investments which had positive net present value and Retained Earnings had a positive and significant relationship between Retained earnings and Susceptibility to Bankruptcy.

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“…Based on the criticisms addressed to the ex ante measures of the cost of equity and problems to meet the conditions of their application, especially in the context of emerging countries such as Tunisia, we choose the use an ex post measure of the COE. Referring to the study of Dakhlaoui and Gana (2015), we select the four factor pricing model (FFPM) developed by Carhart (1997). Thus, the monthly annualised cost of equity capital is estimated for each company in accordance to the following formula: 1 ( )…”

Section: Dependant Variable: Cost Of Equity Capital (Coe)mentioning

confidence: 99%

Ownership Structure and Cost of Equity Capital: Tunisian evidence

Marjene

¹

,

Dakhlaoui

²

2020

IJBGE

Self Cite

0

View full text Add to dashboard Cite

This paper aims to examine the effect of ownership structure on the cost of equity capital in the Tunisian context. Using panel data, the study provides evidence for a negative relationship between ownership concentration and cost of equity capital. However, most ownership composition variables validate the entrenchment effect. Results show an inverted U-shaped relationship between institutional ownership, foreign ownership and cost of equity capital. However, a U-shaped relationship is found between state ownership and the dependent variable. To alleviate endogeneity concerns and establish that the results are robust, the authors re-estimated the regressions using a dynamic approach. It supports the entrenchment effect of ownership concentration. A U-shaped relationship between this variable and the cost of equity capital is confirmed. However, a concave relationship is found when considering ownership composition variables. As for family ownership, the results from static and dynamic approaches are convergent and in favour of entrenchment effects.

show abstract

Estimating the Cost of Equity Capital: An Empirical Analysis in the Tunisian Context

Cited by 3 publications

References 65 publications

Ownership structure and cost of equity capital: Tunisian evidence

Ownership structure and cost of equity capital: Tunisian evidence

Effect of Capital Mix on Susceptibility to Bankruptcy of Companies Listed in the Nairobi Security Exchange

Ownership Structure and Cost of Equity Capital: Tunisian evidence

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