Over the last three decades, the capital asset pricing model has occupied a central and often controversial place in most corporate finance analysts’ tool chests. The model requires three inputs to compute expected returns – a riskfree rate, a beta for an asset and an expected risk premium...

AbstractThe following sections are included:Equity Risk Premiums: Importance and DeterminantsWhy Does the Equity Risk Premium Matter?A price for riskExpected returns and discount ratesInvestment and policy implicationsWhat are the Determinants of Equity Risk Premiums?Risk aversion and...

Valuing banks, insurance companies and investment banks has always been difficult, but the rolling market crises of the last few years has elevated the concern to the top of the list of valuation issues. The problems with valuing financial service firm stem from two key characteristics. The...

We formulate several testable hypotheses on managerial motivation and test our hypotheses by using a sample of 128 organizational form changes in the real estate industry. We find that firms that switch to a more restrictive (tighter) organizational structure have increases in stock value, and...

Most valuation models begin with a measure of accounting earnings to arrive at cash flow estimates. When using accounting earnings, we implicitly assume that the income is obtained by netting out only those expenses that are operating expenses, i.e., expenses designed to generate revenues in the...

Equity risk premiums are a central component of every risk and return model in finance. Given their importance, it is surprising how haphazard the estimation of equity risk premiums remains in practice. The standard approach to estimating equity risk premiums remains the use of historical...

Most firm valuation models start with the after-tax operating income as a measure of the operating income on a firm and reduce it by the reinvestment rate to arrive at the free cash flow to the firm. Implicitly, we assume that the operating expenses do not include any financing expenses (such as...

We study changes in organizational form in the real estate industry based on a sample of 128 changes announced during the period from January 1, 1966 through December 31, 1989. The rich variety of organizational forms of real estate firms with varying degrees of restrictiveness of the equity...