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The Cost of Equity Capital in Emerging Market – The Case of Kenya

GSTF Journal on Business Review

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Title The Cost of Equity Capital in Emerging Market – The Case of Kenya
 
Creator ., William Coffie
., Osita Chukwulobelu
 
Subject Beta, Capital Asset Pricing Model, Cost of Equity Capital, Emerging Market
 
Description Risk is often expressed as cost ofcapital in the context of investment valuations.The estimation of an appropriate discount rate toevaluate investment cash flows in order todetermine its viability is the most important inthe capital budgeting process, whether it is amultinational or small size company. From astrategic point of view, determining theappropriate cost of equity capital is critical inreducing the uncertainty that multinationals(MNCs) and domestic companies face wheninvesting in different countries. Differences inrisk and a lack of understanding of howemerging African stock market returns areinfluenced by the developed markets, as well aslack of reliable long-standing historical marketdata, are factors that international investors andcorporate managers have to cope with. Mostcompanies estimate their cost of equity capitalusing the Capital Asset Pricing Model (CAPM).However, the use of CAPM to estimate cost ofequity capital in emerging African capitalmarkets has numerous challenges, which arediscussed in the literature below. This study isdesigned to empirically investigate whether theCAPM is a sufficient asset pricing model toestimate cost of equity capital in Kenya. A timeseries methodology was followed and the resultshowed that although the CAPM’s betasignificantly explains equity returns, there areother risk factors not captured by CAPM. Thismeans corporate managers and investors mustbeware.
 
Publisher GSTF Journal on Business Review (GBR)
 
Contributor —
 
Date 2014-08-20
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
Peer-reviewed Article
 
Format application/pdf
 
Identifier http://dl6.globalstf.org/index.php/gbr/article/view/198
 
Source GSTF Journal on Business Review (GBR); Vol 2, No 4 (2013): Journal on Business Review (GBR)
ISSN: 2251-2888
2010-4804
 
Language eng
 
Relation http://dl6.globalstf.org/index.php/gbr/article/view/198/215
 
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