Empirical analysis of the Hsia option-pricing based model cost of capital
Autor(a) principal: | |
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Data de Publicação: | 2011 |
Outros Autores: | |
Tipo de documento: | Artigo |
Idioma: | eng |
Título da fonte: | Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
Texto Completo: | http://hdl.handle.net/10400.3/4976 |
Resumo: | The cost of capital is a fundamental concept in strategic decisions such as capital investments, capital structure, new issues, mergers and acquisitions, spin-offs and other corporate restructurings. This paper explores empirically the option-based model developed by Hsia (1991) for estimating the cost of equity and the cost of capital of the firm. The composition of the sample in this exploratory study is all 17 non-financial companies listed in the Euronext Lisbon that are included in the market index PSI20. The Hsia model is used for estimating the cost of equity and the cost of capital of the firm for these 17 companies and is compared to the estimates obtained from the Capital Asset Pricing Model (CAPM) and the traditional weighted average cost of capital (WACC). The difference between the means of the cost of equity estimated by Hsia model and CAPM is not statistically significant at 1% level and their correlation of 46.2% is statistically significant at 1% level. However, the differences at the individual level are quite large. One of the limitations found in this study was the inconsistency on the computation of the cost of debt. The problem arise from the fact that the cost of debt do not follow the pattern expected in the theory, but we also find that the Hsia model is unable to deal with potential inconsistencies of the financial market. |
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Empirical analysis of the Hsia option-pricing based model cost of capitalCost of EquityOption Based Cost of CapitalWeighted Average Cost of CapitalCapital Assets Pricing ModelThe cost of capital is a fundamental concept in strategic decisions such as capital investments, capital structure, new issues, mergers and acquisitions, spin-offs and other corporate restructurings. This paper explores empirically the option-based model developed by Hsia (1991) for estimating the cost of equity and the cost of capital of the firm. The composition of the sample in this exploratory study is all 17 non-financial companies listed in the Euronext Lisbon that are included in the market index PSI20. The Hsia model is used for estimating the cost of equity and the cost of capital of the firm for these 17 companies and is compared to the estimates obtained from the Capital Asset Pricing Model (CAPM) and the traditional weighted average cost of capital (WACC). The difference between the means of the cost of equity estimated by Hsia model and CAPM is not statistically significant at 1% level and their correlation of 46.2% is statistically significant at 1% level. However, the differences at the individual level are quite large. One of the limitations found in this study was the inconsistency on the computation of the cost of debt. The problem arise from the fact that the cost of debt do not follow the pattern expected in the theory, but we also find that the Hsia model is unable to deal with potential inconsistencies of the financial market.Universidade dos AçoresRepositório da Universidade dos AçoresNeves, João C.Pimentel, Pedro2019-01-25T10:40:31Z2011-012011-01-01T00:00:00Zinfo:eu-repo/semantics/publishedVersioninfo:eu-repo/semantics/articleapplication/pdfhttp://hdl.handle.net/10400.3/4976engNeves, João C.; Pimentel, Pedro (2011). Empirical analysis of the Hsia option-pricing based model cost of capital, “Working Paper Series”, nº 3/11, 19 pp.. Ponta Delgada: Universidade dos Açores, CEEAplA-A.info:eu-repo/semantics/openAccessreponame:Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)instname:Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãoinstacron:RCAAP2022-12-20T14:33:15Zoai:repositorio.uac.pt:10400.3/4976Portal AgregadorONGhttps://www.rcaap.pt/oai/openaireopendoar:71602024-03-19T16:27:17.191404Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) - Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãofalse |
dc.title.none.fl_str_mv |
Empirical analysis of the Hsia option-pricing based model cost of capital |
title |
Empirical analysis of the Hsia option-pricing based model cost of capital |
spellingShingle |
Empirical analysis of the Hsia option-pricing based model cost of capital Neves, João C. Cost of Equity Option Based Cost of Capital Weighted Average Cost of Capital Capital Assets Pricing Model |
title_short |
Empirical analysis of the Hsia option-pricing based model cost of capital |
title_full |
Empirical analysis of the Hsia option-pricing based model cost of capital |
title_fullStr |
Empirical analysis of the Hsia option-pricing based model cost of capital |
title_full_unstemmed |
Empirical analysis of the Hsia option-pricing based model cost of capital |
title_sort |
Empirical analysis of the Hsia option-pricing based model cost of capital |
author |
Neves, João C. |
author_facet |
Neves, João C. Pimentel, Pedro |
author_role |
author |
author2 |
Pimentel, Pedro |
author2_role |
author |
dc.contributor.none.fl_str_mv |
Repositório da Universidade dos Açores |
dc.contributor.author.fl_str_mv |
Neves, João C. Pimentel, Pedro |
dc.subject.por.fl_str_mv |
Cost of Equity Option Based Cost of Capital Weighted Average Cost of Capital Capital Assets Pricing Model |
topic |
Cost of Equity Option Based Cost of Capital Weighted Average Cost of Capital Capital Assets Pricing Model |
description |
The cost of capital is a fundamental concept in strategic decisions such as capital investments, capital structure, new issues, mergers and acquisitions, spin-offs and other corporate restructurings. This paper explores empirically the option-based model developed by Hsia (1991) for estimating the cost of equity and the cost of capital of the firm. The composition of the sample in this exploratory study is all 17 non-financial companies listed in the Euronext Lisbon that are included in the market index PSI20. The Hsia model is used for estimating the cost of equity and the cost of capital of the firm for these 17 companies and is compared to the estimates obtained from the Capital Asset Pricing Model (CAPM) and the traditional weighted average cost of capital (WACC). The difference between the means of the cost of equity estimated by Hsia model and CAPM is not statistically significant at 1% level and their correlation of 46.2% is statistically significant at 1% level. However, the differences at the individual level are quite large. One of the limitations found in this study was the inconsistency on the computation of the cost of debt. The problem arise from the fact that the cost of debt do not follow the pattern expected in the theory, but we also find that the Hsia model is unable to deal with potential inconsistencies of the financial market. |
publishDate |
2011 |
dc.date.none.fl_str_mv |
2011-01 2011-01-01T00:00:00Z 2019-01-25T10:40:31Z |
dc.type.status.fl_str_mv |
info:eu-repo/semantics/publishedVersion |
dc.type.driver.fl_str_mv |
info:eu-repo/semantics/article |
format |
article |
status_str |
publishedVersion |
dc.identifier.uri.fl_str_mv |
http://hdl.handle.net/10400.3/4976 |
url |
http://hdl.handle.net/10400.3/4976 |
dc.language.iso.fl_str_mv |
eng |
language |
eng |
dc.relation.none.fl_str_mv |
Neves, João C.; Pimentel, Pedro (2011). Empirical analysis of the Hsia option-pricing based model cost of capital, “Working Paper Series”, nº 3/11, 19 pp.. Ponta Delgada: Universidade dos Açores, CEEAplA-A. |
dc.rights.driver.fl_str_mv |
info:eu-repo/semantics/openAccess |
eu_rights_str_mv |
openAccess |
dc.format.none.fl_str_mv |
application/pdf |
dc.publisher.none.fl_str_mv |
Universidade dos Açores |
publisher.none.fl_str_mv |
Universidade dos Açores |
dc.source.none.fl_str_mv |
reponame:Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) instname:Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação instacron:RCAAP |
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Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação |
instacron_str |
RCAAP |
institution |
RCAAP |
reponame_str |
Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
collection |
Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
repository.name.fl_str_mv |
Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) - Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação |
repository.mail.fl_str_mv |
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1799130728228716544 |