The Estimation of Banks’ Cost of Capital through the Capital at Risk Model: An Empirical Investigation across European Banks

Federico Beltrame, Daniele Previtali and Luca Grassetti

Chapter 2 in Bank Risk, Governance and Regulation, 2015, pp 35-65 from Palgrave Macmillan

Abstract: Abstract Valuing banks is one of the most difficult issues to deal with in corporate finance, and the enduring turmoil which has characterized the aftermath of the financial crisis of 2007 has made it even more complicated (Damodaran, 2013). All the recent academic contributions on the topic (among others: Koller et al., 2010; Damodaran, 2013; Massari et al., 2014) have highlighted that valuation of financial institutions requires an equity-side approach and, consequently, an estimation of the cost of equity instead of weighted average cost of capital.

Keywords: Stock Return; Risk Premium; Systematic Risk; Capital Structure; Default Risk (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:pal:pmschp:978-1-137-53094-3_2

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DOI: 10.1057/9781137530943_2

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