Inderscience Publishers

Inderscience Publishers

A comparison of global empirical results on company cost-of-capital practices

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Company cost-of-capital is the required return on the capital invested in a business. Cost-of-capital rates are applied in different fields of finance and accounting, for instance value-based management or investment appraisal. The purpose of this paper is to discuss and compare previous quantitative empirical results on cost-of-capital practices of companies. The focus is laid on the use of the weighted average cost-of-capital (WACC) and the capital asset pricing model (CAPM). In this paper, an overview on traditional and contemporary cost-of-capital models and their application in managerial finance is given first. Next, an overview on previous quantitative empirical studies is given. Finally, the previous empirical results are compared. It is concluded that there is a large variance in the previous results. Therefore, further research on the determinants of cost-of-capital practices is necessary.

Keywords: cost-of-capital, weighted average cost-of-capital, WACC, capital asset pricing model, CAPM

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