Corporate life cycle identification: a model based on relationship between return on equity and cost of equity
ČlánekOtevřený přístuppeer-reviewedpublishedDatum publikování
2017
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Univerzita Pardubice
Abstrakt
The theory of shareholder value maximisation implies that the ultimate aim
of each entrepreneur is to increase the market value of the company, i.e. to maximise
the wealth of shareholders. This concept assumes that the returns to shareholders
should outperform the cost of capital. The higher the spread is, the better the position
of shareholders. The capital assets pricing model has been very often used for
calculation the cost of equity as implicit costs, where the risk-free rate, the expected
return of the market and the premium to operational and financial risks in the form of
beta coefficient is considered. Moreover, the return on equity is significantly
dependent on the corporate life cycle. The purpose of this paper is to develop an
innovative model identifying stages of the corporate life cycle while using two
variables: the rate of economic profit and the share of operational and financial risk
within the total entrepreneurial risk. The model is verified by using data of a selected
company. Identifying stages of the corporate life cycle should simplify the risk
management and subsequently raise the capital access.
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ISSN 1211-555X (Print)
ISSN 1804-8048 (Online)
ISSN 1804-8048 (Online)
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Zdrojový dokument
Scientific papers of the University of Pardubice. Series D, Faculty of Economics and Administration. 41/2017
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cost of equity, financial risks, operational risks, rate of economic profit, return on equity