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Market and Industry Structure and Corporate Cost of Capital

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  • Sudarsanam, Puliyur S

Abstract

The impact of the structural attributes of industries on the cost of capital to constituent firms is examined within the framework of the capital asset pricing model. The relationship between industry structure and systematic risk that the capital asset pricing model posits as the sole determinant of security returns is investigated using regression methodology. The results show that industry characteristics, such as capital intensity and the capital to labor ratio, and entry barriers, such as advertising, have a significant influence on systematic risk and, hence, on the cost of capital to firms. Copyright 1992 by Blackwell Publishing Ltd.

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  • Sudarsanam, Puliyur S, 1992. "Market and Industry Structure and Corporate Cost of Capital," Journal of Industrial Economics, Wiley Blackwell, vol. 40(2), pages 189-199, June.
    • Handle: RePEc:bla:jindec:v:40:y:1992:i:2:p:189-99
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    Cited by:

    1. Indro, Daniel C. & Richards, Malika, 2007. "The determinants of foreign partner's equity ownership in Southeast Asian joint ventures," International Business Review, Elsevier, vol. 16(2), pages 177-206, April.
    2. Gwangheon Hong & Sudipto Sarkar, 2007. "Equity Systematic Risk (Beta) and Its Determinants," Contemporary Accounting Research, John Wiley & Sons, vol. 24(2), pages 423-466, June.
    3. Sloan, Frank A. & Trogdon, Justin G. & Mathews, Carrie A., 2005. "Litigation and the value of tobacco companies," Journal of Health Economics, Elsevier, vol. 24(3), pages 427-447, May.
    4. Ignacio Munyo, 2004. "The Determinants of Capital Structure: Evidence from an Economy without Stock Market," Econometric Society 2004 Latin American Meetings 267, Econometric Society.
    5. Kahn, Edward & Stoft, Steven & Belden, Timothy, 1995. "Impact of power purchases from non-utilities on the utility cost of capital," Utilities Policy, Elsevier, vol. 5(1), pages 3-11, January.
    6. Fatma Abdel-Raouf, 2010. "Trade-Adjusted Concentration Ratios in the US Manufacturing Sector," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 17(3), pages 385-403.
    7. Guthrie, Graeme, 2011. "A note on operating leverage and expected rates of return," Finance Research Letters, Elsevier, vol. 8(2), pages 88-100, June.
    8. Bouras, Adam & Bouras, David & Ajuzie, Emmanuel, 2014. "An Empirical Analysis Of The Effect Of Diversification On Financial Performance: The Case Of The Us Grocery Store Industry," Review of Applied Economics, Lincoln University, Department of Financial and Business Systems, vol. 10(1-2), January.
    9. Bughin, J., 1999. "Oligopoly profit-sharing contracts and the firm's systematic risk1," European Economic Review, Elsevier, vol. 43(3), pages 549-558, March.

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