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ACCOUNTING FOR THE COST OF CAPITAL: AN EMPIRICAL EXAMINATION
Author(s) -
Bartley Jon W.
Publication year - 1982
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/j.1468-5957.1982.tb00989.x
Subject(s) - cost of capital , economics , equity (law) , sample (material) , residual income valuation , implicit cost , cost of equity , net income , return on capital , accounting , capital formation , financial capital , human capital , microeconomics , total cost , profit (economics) , chemistry , chromatography , political science , law , economic growth
One of accounting's oldest issues, accounting for interest costs, has become a subject of increased concern in recent years. This study empirically addresses the issue of whether the cost of equity capital should be charged against income. Fourteen measures of the cost of equity capital are examined. The empirical tests involve contemporaneous correlation of accounting betas for each income measure with market betas for a sample of 200 companies. The results of these association tests indicate that income measures, net of the cost of equity capital, may have greater information content than income as presently reported.