THE COST OF CAPITAL, MACAULAY'S DURATION, AND TOBIN'S q

Moshe Ben‐Horim; Jeffrey L. Callen

doi:10.1111/j.1475-6803.1989.tb00109.x

THE COST OF CAPITAL, MACAULAY'S DURATION, AND TOBIN'S q

Moshe Ben‐Horim^*
, Jeffrey L. Callen

^*Corresponding author for this work

BA Business Department

Research output: Contribution to journal › Article › peer-review

14 Scopus citations

Abstract

It is shown empirically that the cost of equity capital estimated from the dividend discount model and Tobin's q are negatively related. The theoretical relationship between these variables is exploited to determine alternative estimates of the cost of equity capital and Macaulay's duration without having to estimate the growth rate g in the conventional manner. This new approach can readily be implemented for large firms reporting SFAS No. 33 data.

Original language	English
Pages (from-to)	143-156
Number of pages	14
Journal	Journal of Financial Research
Volume	12
Issue number	2
DOIs	https://doi.org/10.1111/j.1475-6803.1989.tb00109.x
State	Published - 1989

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10.1111/j.1475-6803.1989.tb00109.x

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abstract = "It is shown empirically that the cost of equity capital estimated from the dividend discount model and Tobin's q are negatively related. The theoretical relationship between these variables is exploited to determine alternative estimates of the cost of equity capital and Macaulay's duration without having to estimate the growth rate g in the conventional manner. This new approach can readily be implemented for large firms reporting SFAS No. 33 data.",

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AB - It is shown empirically that the cost of equity capital estimated from the dividend discount model and Tobin's q are negatively related. The theoretical relationship between these variables is exploited to determine alternative estimates of the cost of equity capital and Macaulay's duration without having to estimate the growth rate g in the conventional manner. This new approach can readily be implemented for large firms reporting SFAS No. 33 data.

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THE COST OF CAPITAL, MACAULAY'S DURATION, AND TOBIN'S q

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