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The cost of equity in emerging markets: The case of Latin America

Author

Listed:
  • González, Maximiliano

    (School of Management, Universidad de los Andes)

  • Garay, Urbi

    (IESA)

  • Rosso, John

    (School of Management, Universidad de Los Andes)

Abstract

We applied ten methods to calculate the cost of equity in a set of companies included in the MSCI emerging markets list from five countries in Latin America. The methods modify the discount rate obtained using the standard Capital Asset Pricing Model (CAPM) by adjusting for country risk premiums. We found that country effects are more important than industry effects in Latin America. This work also contributes to a better understanding of how different ways of calculating country risk can affect a firm’s cost of equity. Furthermore, it gives empirical evidence for specific country and industry determinants of the cost of equity that are not explicitly treated in the extant literature

Suggested Citation

  • González, Maximiliano & Garay, Urbi & Rosso, John, 2014. "The cost of equity in emerging markets: The case of Latin America," Galeras. Working Papers Series 038, Universidad de Los Andes. Facultad de Administración. School of Management.
    • Handle: RePEc:uac:somwps:038
    as

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    References listed on IDEAS

    as
    1. González, Maximiliano & Guzmán, Alexander & Pombo, Carlos & Trujillo, María Andréa, 2012. "Family involvement and dividend policy in listed and non-listed firms," Galeras. Working Papers Series 034, Universidad de Los Andes. Facultad de Administración. School of Management.
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    5. González, Maximiliano & Guzmán, Alexander & Pombo, Carlos & Trujillo, María-Andrea, 2013. "Family firms and debt: Risk aversion versus risk of losing control," Journal of Business Research, Elsevier, vol. 66(11), pages 2308-2320.
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    7. Gutiérrez, Luis & Pombo, Carlos, 2008. "Capital markets and corporate governance in Colombia," Galeras. Working Papers Series 025, Universidad de Los Andes. Facultad de Administración. School of Management.
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    11. Forero, Clemente & Corredor, Sandra & Forero, Nohora, 2010. "Business Networks and Innovation in SMEs of a Developing Country," Galeras. Working Papers Series 027, Universidad de Los Andes. Facultad de Administración. School of Management.
    12. Pablo, Eduardo & González, Maximiliano & Garay, Urbi, 2013. "Cultural distance and its effect on cross-border entry mode: Latin American evidence," Galeras. Working Papers Series 036, Universidad de Los Andes. Facultad de Administración. School of Management.
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