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Cost of Capital-The Effect to Firm Value and Profitability Performance in Malaysia

Author

Listed:
  • Nor Edi Azhar Binti Mohamad

    (College of Business Management & Accounting UNITEN)

  • Noriza Binti Mohd Saad

    (College of Business Management & Accounting UNITEN)

Abstract

Firm's cost of capital is determined in the capital markets and is closely related to the degree of risk associated with new investments, existing assets, and the firm's capital structure. It is an overall return that a corporation must earn on its accessible assets and business operations in order to augment or preserve the value of its current stock. Thus a careful approximation of a firm's specific financing and weighted-average cost of capital (WACC) is essential for a good financial management. Thus study highlights the effect of cost of capital towards firms’ value and profitability for a sample of 415 listed companies in main market Bursa Malaysia for 6 years basis from 2005 to 2010. The result of the study shows significant relationships exist between cost of capital with firm value and profitability.

Suggested Citation

  • Nor Edi Azhar Binti Mohamad & Noriza Binti Mohd Saad, 2012. "Cost of Capital-The Effect to Firm Value and Profitability Performance in Malaysia," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 2(4), pages 353-361, October.
    • Handle: RePEc:hur:ijaraf:v:2:y:2012:i:4:p:353-361
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    References listed on IDEAS

    as
    1. Huang, Guihai & Song, Frank M., 2006. "The determinants of capital structure: Evidence from China," China Economic Review, Elsevier, vol. 17(1), pages 14-36.
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    3. Kraus, Alan & Litzenberger, Robert H, 1973. "A State-Preference Model of Optimal Financial Leverage," Journal of Finance, American Finance Association, vol. 28(4), pages 911-922, September.
    4. Lang, Larry H. P. & Stulz, ReneM. & Walkling, Ralph A., 1989. "Managerial performance, Tobin's Q, and the gains from successful tender offers," Journal of Financial Economics, Elsevier, vol. 24(1), pages 137-154, September.
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    Cited by:

    1. Hela Turki & Senda Wali & Zahra Tajuddin Abdelgader Ali & Mona Hassab Elrasoul Mohammed, 2020. "IFRS and Financial Performance: Study in the French Context," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 11(2), pages 424-435, April.

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    More about this item

    Keywords

    Weighted-average cost of capital; Tobin Q; Return on Asset and Z-Score;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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