Does Macro-Asset Pricing Matter for Corporate Finance?

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

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Author(s)

Related Research Unit(s)

Detail(s)

Original languageEnglish
Journal / PublicationCritical Finance Review
Publication statusAccepted/In press/Filed - 15 May 2019

Abstract

In an asset-pricing model calibrated to match the standard asset pricing empirical properties — in particular, the time-variation in the equity premium — we calculate the value implications of sub-optimal capital budgeting decisions. Specifically, we calculate that an investment policy that ignores the time variation in the equity premium, such as would occur with a cost of capital using a static CAPM-like model, incurs a 11.7% value loss. We also document the implications for a firm's asset returns in this context.

Research Area(s)

  • investment, cost of capital, equity risk premium, dynamics, corporate investment policy

Bibliographic Note

Full text of this publication does not contain sufficient affiliation information. With consent from the author(s) concerned, the Research Unit(s) information for this record is based on the existing academic department affiliation of the author(s).

Citation Format(s)

Does Macro-Asset Pricing Matter for Corporate Finance? / Kim, Yongjin; Routledge, Bryan R.

In: Critical Finance Review, 15.05.2019.

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review