Comparing results of the implied cost of capital and capital asset pricing models for infrastructure firms in Brazil

José Roberto Ferreira Savoia, José Roberto Securato, Daniel Reed Bergmann and Fabiana Lopes da Silva

Utilities Policy, 2019, vol. 56, issue C, 149-158

Abstract: This study aims to evaluate whether the implied cost of capital (ICC) model is better than the capital asset pricing model (CAPM) in predicting the realized rate of return for infrastructure firms. We selected a sample of 49 listed companies in Brazil for the period from 2002 to 2014. The CAPM yielded a cost of capital of 11.97% per annum, while the ICC yielded 13.39% per annum, a difference of 1.42% annually. We suggest that a possible explanation for this result is the existence of systematic, non-diversifiable risk, potentially due to regulatory intervention in the business environment.

Keywords: Infrastructure firms; Implied cost of capital; CAPM (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:juipol:v:56:y:2019:i:c:p:149-158

DOI: 10.1016/j.jup.2018.12.004

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