Empirical Evidence for Models to Estimate the Cost of Equity Capital

Eliseu Martins, Fernando Caio Galdi, Gerlando Sampaio Franco de Lima, George Anthony Necyk and Cesar Henrique Shogi Abe
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Eliseu Martins: USP - University of São Paulo
Fernando Caio Galdi: USP - University of São Paulo
Gerlando Sampaio Franco de Lima: USP - University of São Paulo
George Anthony Necyk: USP - University of São Paulo
Cesar Henrique Shogi Abe: USP - University of São Paulo

Brazilian Business Review, 2006, vol. 3, issue 2, 135-152

Abstract: This article investigates whether there are statistically significant differences among the costs of equity capital of Brazilian companies estimated by four models and their variants: Gordon, CAPM, APM and Ohlson-Juettner. We used a cross-section of 34 companies that were part of the São Paulo Stock Exchange Index (IBOVESPA) on December 29, 2005. The results do not permit saying that the choice of model makes no difference in estimating the cost of equity capital, so the methodology hypothesis was rejected. The models based on profit and dividend projections, notably the OJ and Gordon models, resulted in equivalent mean values and also were those that most resemble each other. The OJ model appears to be theoretically superior to the Gordon and Gordon & Gordon models, given that it was developed with fewer premises and in a more analytic manner.

Keywords: company valuation; cost of equity capital; difference of means test. (search for similar items in EconPapers)
Date: 2006
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Persistent link: https://EconPapers.repec.org/RePEc:bbz:fcpbbr:v:3:y:2006:i:2:p:135-152

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