The Corporate Cost of Capital and the Return on Corporate Investment
- 17 December 1999
- journal article
- Published by Wiley in The Journal of Finance
- Vol. 54 (6) , 1939-1967
- https://doi.org/10.1111/0022-1082.00178
Abstract
We estimate the internal rates of return earned by nonfinancial firms on (i) the initial market values of their securities and (ii) the cost of their investments. The return on value is an estimate of the overall corporate cost of capital. The estimate of the real cost of capital for 1950–96 is 5.95 percent. The real return on cost is larger, 7.38 percent, so on average corporate investment seems to be profitable. A by‐product of calculating these returns is information about the history of corporate earnings, investment, and financing decisions that is perhaps more interesting than the returns.Keywords
All Related Versions
This publication has 12 references indexed in Scilit:
- Investment–Cash Flow Sensitivities: Constrained versus Unconstrained FirmsThe Journal of Finance, 2004
- Testing Tradeoff and Pecking Order Predictions About Dividends and DebtSSRN Electronic Journal, 1999
- Industry costs of equityPublished by Elsevier ,1998
- Discounting Under UncertaintyThe Journal of Business, 1996
- Evaluating the performance of value versus glamour stocks The impact of selection biasJournal of Financial Economics, 1995
- U.S. Corporate Leverage: Developments in 1987 and 1988Brookings Papers on Economic Activity, 1990
- Is There a Corporate Debt Crisis?Brookings Papers on Economic Activity, 1988
- Is the Rate of Profit Falling?Brookings Papers on Economic Activity, 1977
- Unbiased Estimators of Long-Run Expected Rates of ReturnJournal of the American Statistical Association, 1974
- The Falling Share of ProfitsBrookings Papers on Economic Activity, 1974