This research will contribute the literature of managerial ability and cost of capital. This study is the first to investigate the association between managerial ability and cost of capital to the best of our knowledge using Demerjian et al. (2012). Managerial ability is the measurement methodology which is the most commonly used method to evaluate the managerial ability in the literature. In a previous study, Mishra (2014) investigates the relation between CEO managerial ability and cost of capital by using Custodio’s (2013) CEO managerial ability methodology. This method only measures the ability of CEOs based on their experience. Those who have several experiences in different departments and other sectors are regarded as generalist CEOs, while some others who have one specific experience in a department and/or sector are regarded as specialist CEOs. Mishra shows a positive relation between generalist CEOs and cost of capital; it is regarded as the dark side of managerial ability. Mishra explains this relation by the risky behaviors of generalist CEOs. Mishra argues that generalist CEOs have lots of job opportunities. They also tend not to focus on the long-term financial soundness of the corporations—aiming to increase revenues sharply in short terms to improve their reputation. We extend Mishra’s analysis by employing firm fixed effect to its model. We find that the impact of general CEO managerial ability which is defined by Mishra (2014) as the dark side is not significant once the employ firm fixed effect is considered. This analysis assesses the effect of managerial ability on cost of capital by using Demerjian’s methodology. It was found that the impact of managerial ability on cost of capital shows a negative significant relation in line with expectations. More able managers lead to less cost of capital. This finding is in line with literature of the impact of managerial ability on company performance. We also employ firm fixed effects to our models and confirm the study’s findings. It is shown that the relation between institutional ownership and cost of capital is also significant. Further, there were many channels examined to identify possible causes of this negative relationship. It is expected that able managers disclose more information; they also help to reduce forecast error and eventually improve performance. The relationships between managerial ability and information disclosure, managerial ability and forecast error, as well as managerial ability and performance are significant. The channel effects are also explored by employing firm fixed effect, as mentioned previously. All the models present significant relationship.

The objective of this research is to isolate and analyze those areas which represent the greatest difficulty in expense, ad ministrative burden and confusion. Information was gathered by survey and interviews to determine what services are offered by underwriting firms and what services small businesses have found most beneficial in planning and executing their offering. The information gathered in Utah is compared with that gathered in California to determine the differences in the public equity markets of the two regions . These differences are the bas i s for the recommended changes in the underwriting procedures in Utah.

This dissertation investigates the relation between firm disclosure, analyst forecast bias, and the cost of equity capital (COEC). Since analyst forecast bias is associated with both implied COEC estimates and disclosure, it is important to control for or remove it from COEC estimates when estimating the relation between disclosure and ex ante expected returns. I begin my analysis by predicting and removing systematic ex ante bias from analyst forecasts to produce de-biased analyst forecasts that better proxy for the market’s ex ante earnings expectations. I use these de-biased analyst forecasts to produce estimates of ex ante expected returns, both at the portfolio- and the firm-level. In addition, I develop a novel estimate of ex ante expected returns by applying Vuolteenaho’s (2002) return decomposition framework to ex post realized returns and accounting data. Finally, using several techniques to control for analyst forecast bias and self-selection bias, I find theoretically consistent evidence of a negative association between regular disclosure and ex ante expected returns. I predict and show that inferences can change when analyst forecast bias is controlled for.

This dissertation investigates the relation between firm disclosure, analyst forecast bias, and the cost of equity capital (COEC). Since analyst forecast bias is associated with both implied COEC estimates and disclosure, it is important to control for or remove it from COEC estimates when estimating the relation between disclosure and ex ante expected returns. I begin my analysis by predicting and removing systematic ex ante bias from analyst forecasts to produce de-biased analyst forecasts that better proxy for the market’s ex ante earnings expectations. I use these de-biased analyst forecasts to produce estimates of ex ante expected returns, both at the portfolio- and the firm-level. In addition, I develop a novel estimate of ex ante expected returns by applying Vuolteenaho’s (2002) return decomposition framework to ex post realized returns and accounting data. Finally, using several techniques to control for analyst forecast bias and self-selection bias, I find theoretically consistent evidence of a negative association between regular disclosure and ex ante expected returns. I predict and show that inferences can change when analyst forecast bias is controlled for.

The dissertation deals with credit risk and default prediction for software companies in the light of Basel II, the new capital accord for financial institutions. A credit risk model was developed which can be used by lenders to predict the default of software companies. Such model was developed by using three independent approaches: In a first approach, a model was created which was based solely on quantitative data (i.e. accounting data). In a second approach, a model was developed which was based entirely on qualitative information, including management skills, know how, quality of services and others. In a third approach, the quantitative and the qualitative models were combined. The results indicate that a credit risk model which is based on both quantitative and qualitative information yields the strongest predictive power. (author´s abstract)

No abstract available. / Dissertation (LLM)--University of Pretoria, 2013. / Centre for Human Rights / unrestricted

Scholars and investors have studied the value premium for several decades. However, the debate over whether risk factors or biased market participants cause the value premium has never been settled. The risk explanation argues that value firms are fundamentally riskier than growth firms. At the same time, the behavioral explanation argues that biased market participants systematically misprice value and growth stocks. In this paper, I use the implied cost of equity capital to capture all risks that investors demand a premium and sort stocks into risk quantiles. The implied cost of equity capital is estimated using models proposed by Gebhardt et al., Claus and Thomas, Ohlson and Juettner-Nauroth, and Easton. I find that value stocks have higher implied cost of equity capital and lower forecasted earnings growth while growth stocks have lower implied cost of equity capital and higher forecasted earnings growth. More importantly, even within the same risk quantile, the value premium still exists. The results suggest that risk and behavioral factors simultaneously cause the value premium. Furthermore, by decomposing the holding period return, I find that adjustments in valuation ratios caused by negative earnings surprises for growth firms and positive earnings surprises for value firms at least partially lead to the value premium.

In this research, I classify all stocks into two groups: dividend and non-dividend payers and hypothesize that profitability premium may only exist among the firms with unforeseeable future cash flows, i.e., non-dividend payers. As expected, my empirical results support that profitability premium only exists among non-dividend payers but is very trivial among dividend payers. Dividends have a moderate effect on profitability premiums. To dig further into the source of profitability premium, I investigated risk and behavioral explanations from three perspectives: macroeconomics, industry, and total risks investors perceive for a firm. The evidence from empirical analysis supports that the profitability premium is mainly driven by the overpriced, unprofitable non-dividend payers, which, on average, have negative earnings announcement returns. In contrast, there is no significant positive or negative abnormal return from earnings announcements for portfolios sorted by profitability among dividend payers. Furthermore, the evidence from analyst forecast errors confirms that analysts are over-optimistic about unprofitable non-dividend-paying stocks and disagree more with their EPS forecast. Overall, the study finds that investors' expectation errors are the source of the profitability premium. It rejects the idea that risk is the profitability premium driver.

Yes / ICAS and The Scottish Accountancy Trust for Education and Research (SATER)

Yes / In this paper, we investigate whether intellectual capital (IC) and financial disclosures jointly affect the firm’s cost of equity capital. In contrast to prior research, we disaggregate disclosures into IC and financial disclosures and examine whether the two disclosure types are jointly related to the cost of equity capital. We also investigate whether IC and financial disclosures have an interaction effect on the cost of equity capital. Using data for a sample of 125 UK firms, we find a negative relationship between the cost of equity capital and IC disclosure. We find that the relationship between financial disclosure and the cost of equity capital is magnified when combined with IC disclosure. Additionally, we find that IC and financial disclosures interact in shaping their effects on the cost of equity capital. Further analyses suggest that the effect of financial disclosure on the cost of equity capital is augmented for firms characterised by a medium level of IC disclosure. These results provide important insights into the relationship between disclosures and cost of equity capital and have policy and practical implications.