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Comparing results of the implied cost of capital and capital asset pricing models for infrastructure firms in Brazil

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  • Ferreira Savoia, José Roberto
  • Securato, José Roberto
  • Bergmann, Daniel Reed
  • Lopes da Silva, Fabiana

Abstract

This study aims to evaluate whether the implied cost of capital (ICC) model is better than the capital asset pricing model (CAPM) in predicting the realized rate of return for infrastructure firms. We selected a sample of 49 listed companies in Brazil for the period from 2002 to 2014. The CAPM yielded a cost of capital of 11.97% per annum, while the ICC yielded 13.39% per annum, a difference of 1.42% annually. We suggest that a possible explanation for this result is the existence of systematic, non-diversifiable risk, potentially due to regulatory intervention in the business environment.

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  • Ferreira Savoia, José Roberto & Securato, José Roberto & Bergmann, Daniel Reed & Lopes da Silva, Fabiana, 2019. "Comparing results of the implied cost of capital and capital asset pricing models for infrastructure firms in Brazil," Utilities Policy, Elsevier, vol. 56(C), pages 149-158.
    • Handle: RePEc:eee:juipol:v:56:y:2019:i:c:p:149-158
    DOI: 10.1016/j.jup.2018.12.004
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