The Cost of Capital and the Market Power of Firms: A Comment

Curley, Anthony J.; Hexter, J. Lawrence; Choi, Dong Gyu

doi:10.2307/1925954

Cited by 20 publications

(13 citation statements)

References 6 publications

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“…Sullivan [1978] documents that beta is negatively related to firm size (output) and concentration in the firm's product market. Similar results are reported by Thomadakis [1976], Melicher, Rush and Winn [1976], Booth [1981], Curley, Hexter and Choi [1982], Sullivan [1982], Van Herck [1982], Moyer and Chatfield [1983], Chen, Cheng and Hite [1986], Bernier [1987], Wallace, Watson and Yandle [1988] and Lee, Liaw and Rahman [1990]. Subsequently, Subrahmanyam and Thomadakis [1980] theoretically linked beta to market power.…”

Section: Introductionsupporting

confidence: 76%

BETA, FIRM SIZE, and CONCENTRATION

Binder

1992

Economic Inquiry

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The asset beta of a j m is dejned as the uncertainty about thejirm'sfuture value scaled by its current value. Empirically, beta is negatively related to ajimz's size and concentration in its major product market. This relation has been interpreted as evidence that monopoly power afects beta. This paper shows that this empirical result is also consistent withCompetitive product markefs where greaterFrm size and concentration are due to greater eflciency in production. Thus, the correlation between beta, jim size and concentration is not prima facie midence of widespread monopoly power. [1983], Chen, Cheng, and Hite [1986] and Wallace, Watson and Yandle [1988] find similar results. Rosenberg and Marathe [1975], Sharpe [1985,3771 and Huberman and Kandel [1985] find that the equity beta is negatively related to firm size, measured by market value of shares outstanding. Sullivan finds the same results when he uses equity betas instead of asset betas.

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Section: Introductionsupporting

confidence: 76%

BETA, FIRM SIZE, and CONCENTRATION

Binder

1992

Economic Inquiry

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“…The significant positive relationship between beta and SIZE is counterintuitive and contrary to both the ST model implication and the empirical evidence from some US studies (Sullivan [1982]; Curley et al [1982]). …”

Section: Iv(ii) Explanatory Variablescontrasting

confidence: 64%

Market and Industry Structure and Corporate Cost of Capital

Sudarsanam¹

1992

The Journal of Industrial Economics

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“…An alternative explanation suggested for the positive relationship between high profit and industry concentration is that concentrated industries are more risky and thus warrant higher return. Subrahmanyam and Thomadakis (1980) developed a theoretical model supporting this hypothesis, and empirical evidence has been reported in Thomadakis (1976), Sullivan (1978Sullivan ( , 1982, Booth (1981), Curley et al (1982), Van (1982), Moyer and Chatfield (1983), Chen et al (1986), Bernier (1987), Wallace et al (1988) and Lee et al (1990).…”

mentioning

confidence: 95%