The validity of the implied cost of capital method: Mechanical earnings forecasts and the incorporation of clean earnings and total dividend figures

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dc.contributor Aalto-yliopisto fi
dc.contributor Aalto University en Montag, Andreas 2014-08-06T08:38:22Z 2014-08-06T08:38:22Z 2013
dc.description.abstract Researchers, investors and managers need a measure that accurately predicts a firm's cost of equity capital, respectively its future expected returns. Therefore, these estimates are a fundamental part of the finance and accounting literature. Among the most recog-nized are the Capital Asset Pricing Model (CAPM) or the Fama French Three-Factor-Model. Irrespective of the great efforts to develop such models the resulting estimates are not satisfactory. A major critique resides in the models dependence on noisy real-ized returns. Using corporate valuation models and current market prices of firms, the implied cost of capital method (ICC) estimates the discount rate that the market applies on a firm's future expectations. While this approach circumvents the use of noisy real-ized returns and relies on intuitively appealing reasoning, the validity of the various ICC models remains unclear, given the current state of literature. The goal of this study is to shed further light on the validity of the ICC method. Therefore, the current state of the literature is reviewed and the most important ICC models are presented. Furthermore, the difficulties of their execution are identified. Afterwards, an empirical analysis on a sample of firms from 1970 to 2005 is performed. ICC estimates for the sample firms are calculated and their performance is evaluated. en
dc.format.extent 94
dc.language.iso en en
dc.title The validity of the implied cost of capital method: Mechanical earnings forecasts and the incorporation of clean earnings and total dividend figures en
dc.type G2 Pro gradu, diplomityö fi Kauppakorkeakoulu fi School of Business en
dc.contributor.department Johtamisen ja kansainvälisen liiketoiminnan laitos fi
dc.contributor.department Department of Management and International Business en
dc.subject.keyword Implied Cost of Capital
dc.subject.keyword CAPM
dc.subject.keyword Corporate Valuation
dc.subject.keyword Expected Returns
dc.identifier.urn URN:NBN:fi:aalto-201408062360
dc.type.dcmitype text en
dc.programme.major International Business en
dc.programme.major Kansainvälinen liiketoiminta fi
dc.type.ontasot Master's thesis en
dc.type.ontasot Pro gradu tutkielma fi
dc.subject.helecon kansainväliset yhtiöt
dc.subject.helecon international companies
dc.subject.helecon johdon laskentatoimi
dc.subject.helecon managerial accounting
dc.subject.helecon yrityksen arvo
dc.subject.helecon company valuation
dc.subject.helecon tulos
dc.subject.helecon return
dc.ethesisid 13655 2014-05-16
dc.location P1 I fi

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