Untitled

The Impact of Earnings Quality on the Cost of Equity: Evidence from Privatized Firms

“…We also find that TIME is negative and significant at the 1% level across all models, in line with Ben-Nasr et al (2012). Additionally, we find that the coefficient for MARKET TO BOOK is negative and significant at the 1% level across all specifications, consistent with the findings of Fama and French (1992), Gode and Mohanram (2003), and Hail and Leuz (2006), among others. Furthermore, we find a positive and highly significant for GROWTH_RATE across all models, in line with the findings of the literature on the implied cost of equity (e.g., Gode and Mohanram (2003)).…”

“…Additionally, we find that the coefficient for MARKET TO BOOK is negative and significant at the 1% level across all specifications, consistent with the findings of Fama and French (1992), Gode and Mohanram (2003), and Hail and Leuz (2006), among others. Furthermore, we find a positive and highly significant for GROWTH_RATE across all models, in line with the findings of the literature on the implied cost of equity (e.g., Gode and Mohanram (2003)). Finally, we find that the coefficient for INFL is positive and significant at the 1% level across all models, consistent with prior litearature (e.g., Hail and Leuz, 2006;Ben-Nasr et al, 2012).…”

“…Fifth, we use the firm's long-term growth rate by the five-year earnings growth rate (GROWTH_RATE) available in I/B/E/S to control for long term growth rate. Prior literature (e.g., Gebhardt et al, 2001;Gode and Mohanram, 2003), among others) shows a positive association between the earnings growth rate and the implied cost of equity, suggesting that the market perceives high growth firms as riskier, consistent with the asset pricing theory. Accordingly, we expect a positive association between R AVG and GROWTH_RATE.…”

“…Fama and French (1992) find that realized stock returns are positively related to the book-to-market ratio, implying a negative association between the market-to-book ratio and the implied cost of equity. Extensive empirical literature support these conjecture (e.g., Gebhardt et al, 2001;Gode and Mohanram, 2003;Hail and Leuz, 2006). Given that, we expect a negative association between R AVG and MARKET TO BOOK.…”

The Implied Cost of Capital: An Empirical Assessment in the Tunisian Context

“…In addition to these conceptual attributes, the interest of the OJ model (2005) is mainly empirical. Indeed, the model is at the basis of many studies dealing with AEG approach implementation, particularly in the Implied Cost of Capital estimation, such as Gode and Mohanram (2003); Easton and Monahan (2005); Lee, So, and Wang (2014); Hou et al (2012). Furthermore, the introduction of some restrictions on the main model allowed regaining several ratios that are widely used by practitioners, such as Price-to-forward Earnings (PE), Price-to-forward Earnings Growth (PEG) and modified Easton (2004) PEG.…”