COST OF EQUITY CAPITAL AND ACCOUNTING-BASED DRIVERS OF RISK

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SAGHAFI ALI; RAHMANI ALI; MOTAMEDI FAZEL MAJID

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Journal: JOURNAL OF ACCOUNTING KNOWLEDGE Year:2010 | Volume:1 | Issue:2 Page(s): 9-32

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Title

COST OF EQUITY CAPITAL AND ACCOUNTING-BASED DRIVERS OF RISK

Author(s)

SAGHAFI ALI | RAHMANI ALI | MOTAMEDI FAZEL MAJID | Issue Writer Certificate

Keywords

RISKQ2

COST OF EQUITY CAPITALQ2

RESIDUAL INCOME MODELQ3

ACCOUNTING FUNDAMENTALSQ3

Abstract

According to the Capital Asset Pricing Model (CAPM), the only RISK factor that investors should take into account in making their decisions is the systematic RISK (b). Several studies have shown that the market RISK (b) is not the only RISK factor affecting the expected rate of return and there are other RISK factors different to b. This paper analyzes the relevance of ACCOUNTING FUNDAMENTALS to inform about equity RISK as measured by the COST OF EQUITY CAPITAL. Considering the COST OF EQUITY CAPITAL is a summary measure of how investors make decisions regarding the allocation of resources, the strength of the association between the cost of equity and accounting-based measures of RISK, indicates how important these measures are for market participants when making economic decisions. In this study, for estimating the cost of equity, three models O' Hanlon and Steel, Gordon and Capital asset pricing are used. Also, to test assumptions, regression method has been employed. The sample refers to 66 firms accepted in Tehran Stock Exchange along the period 1997–2008. Research results support the association between the COST OF EQUITY CAPITAL and some accounting-based RISK variables, thereby supporting the usefulness of fundamental analysis to determine the RISK.

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هزینه حقوق صاحبان سهام و ویژگی های سود

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APA: Copy

SAGHAFI, ALI, RAHMANI, ALI, & MOTAMEDI FAZEL, MAJID. (2010). COST OF EQUITY CAPITAL AND ACCOUNTING-BASED DRIVERS OF RISK. JOURNAL OF ACCOUNTING KNOWLEDGE, 1(2), 9-32. SID. https://sid.ir/paper/163356/en

Vancouver: Copy

SAGHAFI ALI, RAHMANI ALI, MOTAMEDI FAZEL MAJID. COST OF EQUITY CAPITAL AND ACCOUNTING-BASED DRIVERS OF RISK. JOURNAL OF ACCOUNTING KNOWLEDGE[Internet]. 2010;1(2):9-32. Available from: https://sid.ir/paper/163356/en

IEEE: Copy

ALI SAGHAFI, ALI RAHMANI, and MAJID MOTAMEDI FAZEL, “COST OF EQUITY CAPITAL AND ACCOUNTING-BASED DRIVERS OF RISK,” JOURNAL OF ACCOUNTING KNOWLEDGE, vol. 1, no. 2, pp. 9–32, 2010, [Online]. Available: https://sid.ir/paper/163356/en

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