Otago University Research Archive
The corporate cost of capital and financial investment in New Zealand
Otago University Research Archive
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| dc.contributor.author | Chen, Jianguo | en_NZ |
| dc.contributor.author | Wang, Ruijing | en_NZ |
| dc.contributor.author | Black, Carolyn | en_NZ |
| dc.date.copyright | 2006-08-04 | en_NZ |
| dc.identifier.citation | Chen, J., Wang, R., & Black, C. (2006, August 4). The corporate cost of capital and financial investment in New Zealand. University of Otago Department of Finance Seminar Series. Presented at the University of Otago, Department of Finance, Seminar. | en |
| dc.identifier.uri | http://hdl.handle.net/10523/1542 | |
| dc.description.abstract | We have estimated the cost of capital for the New Zealand listed non-finance corporate sector by the corporate internal rate of return method adopted by Fama and French (1999). The real IRR on value is 1.87% and IRR on cost is 4.38%. An industry analysis revealed large differences in returns, with five out of six industry sectors achieving positive nominal and real IRRs. The cash flows component analysis reveals that on average, New Zealand firms generated income equal to 4.93% of beginning of year book value, which is much less than the comparable US rate of 8.83% (Fama and French, 1999). Mirroring this income difference, the issuance of equity by New Zealand companies equal to 5.57% of the beginning book value, greatly exceeded the US rate of 0.81% (Fama and French, 1999). Although New Zealand firms tend to place more reliance on equity issues to finance their total investment requirements, debt issues are also often used. | en_NZ |
| dc.format.mimetype | application/pdf | |
| dc.relation.ispartof | University of Otago Department of Finance Seminar Series | en_NZ |
| dc.relation.uri | http://www.business.otago.ac.nz/finc/research/seminars_06.html | en_NZ |
| dc.subject | Cost of Capital; Internal Rate of Return; New Zealand Market; Corporate Finance; Cash Flows. | en_NZ |
| dc.subject.lcsh | HF Commerce | en_NZ |
| dc.subject.lcsh | HF5601 Accounting | en_NZ |
| dc.subject.lcsh | HG Finance | en_NZ |
| dc.title | The corporate cost of capital and financial investment in New Zealand | en_NZ |
| dc.type | Conference or Workshop Item (Seminar, Speech or Other Presentation) | en_NZ |
| dc.description.version | Unpublished | en_NZ |
| otago.bitstream.pages | 39 | en_NZ |
| otago.date.accession | 2007-04-12 | en_NZ |
| otago.school | Finance | en_NZ |
| otago.openaccess | Open | |
| otago.place.publication | Dunedin, New Zealand | en_NZ |
| dc.identifier.eprints | 611 | en_NZ |
| dc.description.refereed | Non Peer Reviewed | en_NZ |
| otago.school.eprints | Finance & Quantitative Analysis | en_NZ |
| dc.description.references | Baber, W.R. & Kang, S., 1996. Estimates of economic rates of return for the U.S. pharmaceutical industry, 1976-1987. Journal of Accounting and Public Policy, 15, 327-346 Bowman, R.G. & Marsden, A., 1996. Cost of capital under imputation: An analysis of comparative models. New Zealand Investment Analyst, 27-32 Brennan, M.J., 1970. Taxes, Market Valuation and Corporate Financial Policy, National Tax Journal, 23, No.4, 417-427. Chan L.K.C., Jegadeesh, N., & Lakonishok, J., 1995. Evaluating the performance of value versus glamour stocks: The impact of selection bias. Journal of Financial Economics, 38, 269-296 Chay, J.B., Marsden, A., & Stubbs, R., 1993. Historical rates of return to equities, bonds, and the equity risk premium: New Zealand evidence. Pacific Accounting Review, 5(1), 27-46 Chay, J.B., Marsden, A., & Stubbs, R., 1995. Historical rates of return to equities, bonds, and the equity risk premium: New Zealand evidence, New Zealand Investment Analyst, 19-27 Fama, E.F & French, K.R., 1999. The corporate cost of capital and the return on corporate investment. The Journal of Finance, (54), 1939-67. Feldstein, M. & Summers, L., 1977. Is the rate of profit falling? Brookings Papers on Economic Activity, 1, 211-227 Feldstein, M., Dicks-Mireaux, L., & Poterba, J., 1996. The effective tax rate and the pretax rate of return. Journal of Public Economics, 21, 129-158 Gebhardt, W.R., Lee, C.M.C., & Swaminathan, B., 2001. Toward an implied cost of capital. Journal of Accounting Research, 39 (1), 135-176 Ibbotson, R.G. & Sinquefield, R.A., 1976. Stocks, bonds, bills and inflation: Year-by-year historical returns (1926-1976). Journal of Business, 49(1), 11-47 Ibbotson, R.G. & Sinquefield, R.A., 1989. Stocks, bonds, bills and inflation: Year-by-year historical returns (1926-1987). The Research Foundation of the Institute of Chartered Financial Analysts. Lally, M., 1992. The CAPM under dividend imputation. Pacific Accounting Review, 4(1), 31- 44 Lally, M., 2001. Valuation of projects and companies under differential personal taxation. New Zealand Investment Analyst, 36-39 Myers, S. C., 1977. Determinants of corporate borrowing. Journal of Financial Economics, 5, 147-175 Nordhaus, W.D., 1974. The falling share of profits. Brookings Papers on Economic Activity, 1, 169-208 Officer, R., 1994. The cost of capital of a company under an imputation tax system. Accounting and Finance, 34(1), 1-17 Tohmatsu, D.T., 1998. Cost of capital. Accountancy International, June, 85 | en_NZ |
| otago.event.dates | 4 August 2006 | en_NZ |
| otago.event.place | Commerce 5.37, University of Otago, Dunedin, Otago | en_NZ |
| otago.event.type | other | en_NZ |
| otago.event.title | University of Otago, Department of Finance, Seminar | en_NZ |
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