Implied cost of equity capital in earnings-based valuation: international evidence^*

Abstract

Based on gaining privileged access to interview senior representatives of audit firms, regulatory bodies, financial institutions, universities and other organisations in mainland China, Hong Kong and the UK, this exploratory study presents a range of informed views about the rapid development of China's auditing profession over the last 25 years. It explores the emerging roles of the firms in the 2nd-tier international networks and among the larger stand-alone firms as challengers to the Big 4, nationally and internationally. It identifies national and international institutional interactions that have shaped and are being shaped by this rapid growth, with particular reference to the overarching role of the State's shifting strategies to create a domestic profession in China that can compete internationally. The potential consequences, given China's unequalled size and its expanding global influence, could change the nature and structure of the global profession. A significant contribution of this exploratory empirical study has been to deconstruct the continuing conventional political and academic rhetoric that dichotomises firms into 'foreign vs local' and 'Big 4 vs other'. It contributes new voices and alternative perspectives to the emerging literature on the glocalization of large professional services firms and suggests new opportunities for future auditing research.

Audit partner busyness and cost of equity capital

“…The average leverage ratio is 20%. The mean BETA (0.74) is similar to that of Chen, Jorgensen, and Yoo () (0.75). The mean (median) | DAC |, our mediating variable, is 13% (11%) of lagged total assets.…”

Corporate Governance, Commitment to Business Ethics, and Firm Valuation: Evidence from the Korean Stock Market

“…An expanding body of studies has investigated the issues pertaining to the COC and examined factors that influence the required rate of return (Agmon and Findlay, 1982;Chen et al, 2004;Choi and Jung, 2008;Damodaran, 2003;Dargenidou et al, 2006;Daske, 2006;Hail and Leuz, 2006;He and Kryzanowski, 2007;Koedijk and van Dijk, 2004;Sabal, 2004). We investigate whether or not the benefits of good corporate governance are manifested in a lower implied cost of capital.…”

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

“…One way to justify its validity is to study its relationship with other variables that reflect risk factors of the firm as perceived by investors. This is the approach taken by, for example, Botosan and Plumlee (2002a), Gebhardt et al (2001), Hail (2002) and Chen et al (2004). Our choice of control variables has been guided by the list of variables used in these previous studies.…”

“…The interested reader can refer to Easton and Monahan (2003) or Chen et al (2004). 11 We would like to thank an anonymous referee for suggesting this.…”