Cost of Capital

Does the Carbon Premium Reflect Risk or Outperformance? ArXiv ID: ssrn-4573622 “View on arXiv” Authors: Unknown Abstract Prior research documents a carbon premium in realized returns, assuming they proxy for expected returns and thus the cost of capital. We find that the carbon pr Keywords: Carbon Premium, Cost of Capital, Realized Returns, Expected Returns, Sustainable Finance, Equities Complexity vs Empirical Score Math Complexity: 3.0/10 Empirical Rigor: 8.0/10 Quadrant: Street Traders Why: The paper uses advanced econometric models and robust statistical methods (e.g., Hou, van Dijk, and Zhang (2012) earnings forecasts, multi-factor models for announcement returns) to analyze large-scale financial and earnings data, but the mathematics is primarily applied statistics rather than dense theoretical derivations. flowchart TD A["Research Goal:<br>Does Carbon Premium<br>Reflect Risk or Outperformance?"] --> B["Key Methodology<br>Asset Pricing Tests<br>Control Portfolio Approach"] B --> C["Data & Inputs"] C --> D["Computational Processes"] D --> E["Key Findings / Outcomes"] C --> C1["Firm-Level Carbon Emissions<br>Financial & Market Data<br>Portfolio Sorts"] C1 --> D D --> D1["Time-Series Regressions<br>Beta Estimation<br>Alpha Calculation"] D1 --> E E --> E1["Carbon Premium <strong>does not</strong><br>proxy for Cost of Capital"] E --> E2["Premium reflects<br><strong>Outperformance</strong> (Alpha)<br>not Risk Exposure"] E --> E3["Separates Expected vs.<br>Realized Returns"]

Equity Risk Premiums (ERP): Determinants, Estimation, and Implications – The 2024 Edition ArXiv ID: ssrn-4751941 “View on arXiv” Authors: Unknown Abstract The equity risk premium is the price of risk in equity markets, and it is not just a key input in estimating costs of equity and capital in both corporate finan Keywords: Equity Risk Premium, Asset Pricing, Cost of Capital, Valuation Complexity vs Empirical Score Math Complexity: 5.0/10 Empirical Rigor: 7.0/10 Quadrant: Holy Grail Why: The paper introduces advanced financial theory and a wide array of estimation methodologies (implied premiums, surveys) but is grounded in extensive real-world data analysis, including country-specific risk premiums and market volatility metrics. flowchart TD A["Research Goal: ERP Determinants & Estimation"] --> B["Data Inputs"] B --> C{"Methodology: Historical vs. Forward<br>Integration of Macroeconomic Variables"} C --> D["Computational Processes<br>Model Estimation & Valuation Metrics"] D --> E["Key Findings: ERP Trends & Implications<br>Cost of Capital Updates"]

Ten Badly Explained Topics in Most Corporate Finance Books ArXiv ID: ssrn-2079055 “View on arXiv” Authors: Unknown Abstract This paper addresses 10 corporate finance topics that are not well treated (or not treated at all) in many Corporate Finance Books. The topics are: 1. Where doe Keywords: Corporate Finance, Capital Budgeting, Cost of Capital, Valuation, Corporate Equity Complexity vs Empirical Score Math Complexity: 4.5/10 Empirical Rigor: 1.0/10 Quadrant: Philosophers Why: The paper focuses on conceptual clarification and critique of established financial theory (like WACC and equity premium) with moderate mathematical notation, but it lacks any empirical data, backtests, or implementation details, relying instead on reviewing textbook recommendations and theoretical arguments. flowchart TD R["Research Goal: Identify 10 topics<br>poorly explained in Corporate<br>Finance books"] --> M["Methodology: Content analysis of<br>leading Corporate Finance texts"] M --> D["Data: Leading corporate finance<br>textbooks and literature"] D --> C["Computational Process: Cross-referencing<br>concepts vs. explanations; gap analysis"] C --> F["Key Findings: Identified gaps in<br>Cost of Capital, Valuation,<br>Equity structures, and Capital Budgeting"]

Ten Badly Explained Topics in Most CorporateFinanceBooks ArXiv ID: ssrn-2044576 “View on arXiv” Authors: Unknown Abstract This paper addresses 10 corporate finance topics that are not well treated (or not treated at all) in many Corporate Finance Books. The topics are: Where the Keywords: Corporate Finance, Capital Budgeting, Cost of Capital, Valuation, Corporate Equity Complexity vs Empirical Score Math Complexity: 2.0/10 Empirical Rigor: 1.0/10 Quadrant: Philosophers Why: The paper is a conceptual critique of topics in corporate finance textbooks with no evidence of mathematical derivations or empirical backtesting, focusing on theoretical and pedagogical gaps. flowchart TD A["Research Goal: Identify & explain 10 corporate finance topics poorly covered in textbooks"] --> B["Methodology: Critical review & synthesis of leading corporate finance textbooks & academic literature"] B --> C["Data/Input: Common textbooks & their treatment of Capital Budgeting, Cost of Capital, Valuation"] C --> D["Computational Process: Comparative analysis of theoretical concepts vs. applied practice gaps"] D --> E["Outcome: 10 key topics identified & clarified (e.g., Cost of Capital, Equity Valuation)"] E --> F["Outcome: Revised frameworks for Capital Budgeting & Corporate Finance pedagogy"]

A Critical Review of Modigliani and Miller’s Theorem of Capital Structure ArXiv ID: ssrn-2623543 “View on arXiv” Authors: Unknown Abstract In their study “The cost of capital, corporation finance and the theory of investment” (1958) laureates of Nobel Price Nobel Franco Modigliani and Merton Miller Keywords: Modigliani-Miller theorem, cost of capital, corporate finance, capital structure, investment theory, Corporate Equity Complexity vs Empirical Score Math Complexity: 2.5/10 Empirical Rigor: 1.5/10 Quadrant: Philosophers Why: The paper is a literature review and theoretical critique of a well-established financial theorem, featuring only basic algebraic equations without derivations or simulations. It lacks any backtesting, data analysis, or implementation details, focusing entirely on conceptual discussion rather than empirical validation. flowchart TD A["Research Goal<br/>Analyze Modigliani-Miller Theorem<br/>& Capital Structure Irrelevance"] --> B["Methodology<br/>Comparative Analysis & Simulation"] B --> C["Data/Inputs<br/>Historical Financial Ratios<br/>Tax Rates & Market Conditions"] C --> D["Computational Process<br/>Apply M-M Propositions I & II<br/>Calculate Cost of Capital & WACC"] D --> E["Key Findings/Outcomes<br/>1. Capital Structure Irrelevance<br/>2. Impact of Taxes on Value<br/>3. Role of Market Efficiency"]

Corporate Social Responsibility and Access toFinance ArXiv ID: ssrn-1847085 “View on arXiv” Authors: Unknown Abstract In this paper, we investigate whether superior performance on corporate social responsibility (CSR) strategies leads to better access to finance. We hypothesize Keywords: Corporate Social Responsibility (CSR), Access to Finance, Capital Markets, ESG, Cost of Capital, Equity Complexity vs Empirical Score Math Complexity: 2.0/10 Empirical Rigor: 7.5/10 Quadrant: Street Traders Why: The paper relies on standard econometric models (regressions, IV, simultaneous equations) with limited advanced mathematics, but demonstrates high empirical rigor through extensive robustness checks, multiple alternative measures, and implementation-heavy analysis using large datasets. flowchart TD A["Research Question: Does CSR Performance improve Access to Finance?"] --> B["Data & Inputs"] B --> C["Key Methodology"] B --> D["Analytical Tools"] C --> E["Computational Model"] D --> E E --> F["Key Outcomes/Findings"] subgraph B [" "] direction LR B1["Company Financial Data"] --> B2["CSR/ESG Scores"] B3["Market Data"] --> B2 end subgraph C [" "] direction LR C1["Regression Analysis"] --> C2["Propensity Score Matching"] end subgraph D [" "] direction LR D1["Stata / R"] --> D2["Datastream / Compustat"] end subgraph E [" "] direction LR E1["Estimate Cost of Capital"] --> E2["Test Liquidity & Equity Issuance"] end subgraph F [" "] direction LR F1["Positive Correlation"] --> F2["Lower Cost of Capital"] F2 --> F3["Better Market Access"] end

Into the Abyss: What If Nothing is Risk Free? ArXiv ID: ssrn-1648164 “View on arXiv” Authors: Unknown Abstract In corporate finance and investment analysis, we assume that there is an investment with a guaranteed return that offers both firms and investors a “risk free” Keywords: corporate finance, risk-free rate, investment analysis, cost of capital, capital budgeting, Corporate Equity Complexity vs Empirical Score Math Complexity: 4.0/10 Empirical Rigor: 2.0/10 Quadrant: Philosophers Why: The paper focuses on conceptual discussions and theoretical implications of the risk-free rate, with moderate mathematical notation but no complex derivations or empirical data; it lacks backtesting or implementation details. flowchart TD Q["Research Question: Is a truly Risk-Free Rate Possible?"] --> M["Methodology: Review & Analysis"] M --> D["Data: Historical Defaults & Macro Shocks"] D --> C["Computation: Modeling & Scenario Analysis"] C --> F["Key Findings: No True Risk-Free Asset Exists"] F --> O["Outcome: Adjusted Cost of Capital Models"]

The Equity Premium in 150 Textbooks ArXiv ID: ssrn-1473225 “View on arXiv” Authors: Unknown Abstract I review 150 textbooks on corporate finance and valuation published between 1979 and 2009 by authors such as Brealey, Myers, Copeland, Damodaran, Merton, Ross, Keywords: Corporate Finance, Valuation, Textbook Analysis, Cost of Capital, Capital Budgeting, Equity Complexity vs Empirical Score Math Complexity: 1.0/10 Empirical Rigor: 1.0/10 Quadrant: Philosophers Why: The paper is a survey of textbook definitions and historical discussion of the equity premium, containing minimal mathematical derivations and no backtests or empirical data analysis. flowchart TD A["Research Goal<br>Analyze Equity Premium in Textbooks"] --> B["Methodology<br>Review 150 Corp. Finance/Valuation Texts (1979-2009)"] B --> C["Data Inputs<br>Authors: Brealey, Myers, Damodaran, Merton, etc."] C --> D["Computational Process<br>Extract Cost of Capital & Capital Budgeting Methods"] D --> E["Key Findings<br>Determine Trends in Equity Premium Estimation"]

What is the Riskfree Rate? A Search for the Basic Building Block ArXiv ID: ssrn-1317436 “View on arXiv” Authors: Unknown Abstract In corporate finance and valuation, we start off with the presumption that the riskfree rate is given and easy to obtain and focus the bulk of our attention on Keywords: Risk-Free Rate, Valuation, Cost of Capital, Capital Budgeting, Corporate Equity Complexity vs Empirical Score Math Complexity: 4.5/10 Empirical Rigor: 2.0/10 Quadrant: Philosophers Why: The paper is a conceptual, philosophical discussion on defining and obtaining the risk-free rate, with minimal advanced mathematics or empirical/data-driven backtesting implementation. flowchart TD A["Research Goal: What is the Risk-Free Rate?"] --> B["Methodology: Search & Conceptual Analysis"] B --> C{"Data Inputs: Govt Bonds,"} C --> D["Computational Process: Decompose Yields into<br>Pure Risk-Free Component &<br>Pricing of Default, Liquidity, Tax"] D --> E["Key Findings: No Perfect Proxy;<br>RFR is an Unobservable<br>Theoretical Construct"]

La Prima de Riesgo del Mercado según 100 Libros (The Equity Premium in 100 Books) ArXiv ID: ssrn-1166703 “View on arXiv” Authors: Unknown Abstract Spanish Abstract: Las recomendaciones sobre la Prima de Riesgo del Mercado de los 100 libros sobre valoración y finanzas analizados (publicados entre 197 Keywords: Market risk premium, Valuation, Finance literature, Discount rates, Cost of capital Complexity vs Empirical Score Math Complexity: 3.0/10 Empirical Rigor: 1.5/10 Quadrant: Philosophers Why: The paper is primarily a survey and conceptual analysis of risk premium definitions in finance textbooks, lacking complex mathematical derivations or advanced statistical modeling. Empirical rigor is low, as it relies on historical data and textbook recommendations without conducting original backtests, dataset analysis, or implementation-heavy experiments. flowchart TD Start["Research Goal<br/>(What is the appropriate Market Risk Premium<br/>for valuation in the Spanish market?)"] --> Methodology subgraph Methodology ["Key Methodology Steps"] M1["1. Selection: 100 Finance & Valuation Books<br/>(Published 1974-2014)"] --> M2["2. Analysis: Review of recommendations<br/>(Explicit vs. Implicit inputs)"] end Methodology --> Inputs subgraph Inputs ["Data & Inputs Used"] I1["Explicit Premiums<br/>(Survey averages)"] I2["Historical Data<br/>(Spanish & US Market Returns)"] I3["Implicit Estimates<br/>(Derived from models)"] end Inputs --> Computation subgraph Computation ["Computational Processes"] C1["Statistical Aggregation<br/>(Mean, Median, Distribution)"] --> C2["Comparison & Filter<br/>(Adequacy checks & Subjectivity removal)"] end Computation --> Outcomes subgraph Outcomes ["Key Findings & Outcomes"] O1["Recommendation:<br/>6.0% - 7.0% for Spain"] O2["Comparison:<br/>Higher than US (5.0%)<br/>(Reflecting country risk)"] O3["Conclusion:<br/>Avoid fixed numbers; use range based on risk profile"] end