Market and Industry Structure and Corporate Cost of Capital

Abstract

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A note on operating leverage and expected rates of return

“…The proxies-such as measures of asset specificity and of R&D spending-reveal information about the value of a firm's abandonment and growth options. 9 Early studies, which directly examine the role of operating leverage, use equity returns rather than asset returns (Lev, 1974;Mandelker and Rhee, 1984;Sudaranam, 1992). More recent work on the value premium, which indirectly examines the role of operating leverage, also uses equity returns (Carlson et al, 2004;Novy-Marx, 2010).…”

Understanding the cost of capital of logistics service providers: an empirical investigation of multiple contingency variables

“…All LSP clusters, except Transportation Services, are-more or less-asset based (Table 1), which means that they have several tangible resources (property, plants, and equipment), and their capital is tied up and not available on short notice. Hence, the asset flexibility of LSPs (except for Transportation Services) is low, which is also indicated by the intensity of investment; the higher this ratio, the lower the asset flexibility, and consequently, the higher the CoC, which is also partly shown by Sudarsanam [47].…”

“…Microeconomic variables related to the asset structure of an LSP allow for conclusions on their scope of services (LSPs taking the role of coordination or provision of asset-based services), the degree of customization, and average duration of business relationships, as well as on LSPs' asset flexibility [21] Based on the analyzed variables of asset structure [37,40,47,68] Asset intensity 1 Non-current assets/ current assets [40,47] Continuous intensity Current assets/total assets Based on the analyzed variables of asset structure [37,40,47,68] Asset intensity 2 Current assets/noncurrent assets [40,47] Asset turnover Annual revenues/total assets [37,68] Current asset turnover Annual revenues/ current assets Based on the analyzed variables of asset structure [37,40,47,68] Capital structure Debt to equity ratio Debt/equity Microeconomic variables related to the capital structure of an LSP allow for conclusions on how assets are financed, by debt or equity [78] [ 47,79] Equity ratio Equity/total capital [16,40] Debt ratio Debt/total capital [37,80] Liquidity structure Quick ratio (Current assetsinventories)/current liabilities Microeconomic variables related to the liquidity structure of an LSP reflects the ability of LSPs to pay all outstanding claims and cover liabilities [21] [ 37,68] Current ratio Current assets/current liabilities [79,81] Profitability structure Return on equity (ROE)…”

“…Other analyses regarding both micro-and macroeconomic variables were conducted by Arfaoui and Abaoub [39] and Martikainen [40], also revealing the influence of both set of variables on systematic risk. In a logistical context, Houmes et al [41] analyzed the influence of the financial structure of trucking companies on their systematic risk and showed among other things, a positive influence of operating leverage on [47]. He showed that company characteristics like capital intensity (which was also considered on an aggregated level on an industry basis) significantly influence the systematic risk and the CoC of companies.…”

“…The corporate discount rate (WACC) even depends largely on specific company characteristics (expressed by key financial figures of the firm), highlighted in a wide range of studies. For example, the analyses of Sudarsanam [47] showed a general influence of company characteristics on their CoC. Moreover, microeconomic variables are captured by various works on the ''capital structure choice'' [53].…”