Socially Responsible Investment: the discount rate in SME

• Autor(a) principal: ROJO - RAMIREZ, Alfonso
• Data de Publicação: 2008
• Outros Autores: ALONSO - CANADAS, Juana, Abreu, Rute
• Tipo de documento: Artigo
• Idioma: eng
• Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
• Texto Completo: http://hdl.handle.net/10314/997
• topic: Enterprise Valuation; Discount rate; Risk level; Illiquidity premium

Purpose - This research discusses the socially responsible investment (SRI) through the influence of the discount rate of small-and medium-sized enterprises (SME). It explores direct and indirect, impact of the discount rate to sustainable management practices. Design/methodology/approach - This research presents dual theoretical framework. The first is based in finance and CSR theory that assure the link between SRI through discount rate, risk level and illiquidity premium which establish the financial investment practices. The second is based in the seventh document of Asociación Espanola de Contabilidad y Administración (AECA). This document show the enterprise valuation issued and it suggests a systematic methodology to estimate the minimum rate of return which establish the decision making process. Findings - A SRI justifies that mean of the discount rate determine by AECA method (AECA. 2005) is 2.45% and it is superior to the mean determine by CAPM method (Sharpe, 1964). It therefore contains the seeds of the difficulty to capture the risk level and the illiquidity premium in order to pursuit the SME value considering their low marketability and, for this reason, fewer liquidity which may involves. Practical implications - It is also reasonable to suspect that regarding the discount rate of SME determine by AECA method validates investor’s expectations, which are related with marketability and liquidity developments and their risk aversion at a given moment of time. Originality/value - the seventh document of AECA is efficient for practitioners, because it avoid subjectivity of the value due to the reduction of non-marketability enterprises. Also, it contributes to a more SRI and it opens new ways of researching that will improve our knowledge about SME valuation.