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Estimating individual company costs of capital from cross‐sectional data: A random coefficients approach
Author(s) -
Thompson Howard E.
Publication year - 1984
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.4090050303
Subject(s) - econometrics , estimation , rank correlation , cost of capital , capital (architecture) , rank (graph theory) , equity (law) , economics , statistics , capital cost , regression analysis , actuarial science , business , mathematics , microeconomics , management , profit (economics) , archaeology , combinatorics , political science , law , history , macroeconomics
The purpose of this study is to extend the empirical analysis of Thompson (1979) to generate individual company costs of equity capital from statistical analysis of cross‐sectional industry data. The paper uses a new random coefficients regression approach on 18 cross‐sections of 75 electric utilities for the years 1963–1980. The results show rank stability between years and plots of individual company costs of average and simple facts about companies. The procedure does not allow calculation of standard errors of the estimates but when compared with existing cost of capital methods is shown to be a useful addition to the methodology of estimation.