The Cost of Equity for Private Firms

M. Abudy; Simon Benninga; Efrat Shust

The Cost of Equity for Private Firms

M. Abudy
, Simon Benninga
, Efrat Shust

School of Business Administration

Research output: Contribution to conference › Paper › peer-review

Abstract

The paper presents a method for calculating the cost of equity capital for the non-marketable securities of private firms and its difference from the cost of equity capital of an all else equal public firm (the private firm premium). The method is based on a theoretical framework that assumes the investor is undiversified due to her holdings in non-marketable securities. We implement the method for both unlevered and levered firms, and also consider the effect of taxes. The findings indicate that the private firm premium increases with the firm's asset risk, its leverage ratio, and the non-diversification of the private firm's owner, while taxes are negatively related to the private firm premium.

Original language	American English
State	Published - 2015
Event	17th EBES 2015 conference - Venice, Italy Duration: 12 Oct 2015 → 14 Oct 2015

Conference

Conference	17th EBES 2015 conference
Country/Territory	Italy
City	Venice
Period	12/10/15 → 14/10/15

17th EBES 2015 conference
Abudy, M. (Participation - Conference participant)
12 Oct 2015 → 14 Oct 2015
Activity: Participating in or organizing an event › Organizing a conference, workshop, ...

Cite this

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title = "The Cost of Equity for Private Firms",

abstract = "The paper presents a method for calculating the cost of equity capital for the non-marketable securities of private firms and its difference from the cost of equity capital of an all else equal public firm (the private firm premium). The method is based on a theoretical framework that assumes the investor is undiversified due to her holdings in non-marketable securities. We implement the method for both unlevered and levered firms, and also consider the effect of taxes. The findings indicate that the private firm premium increases with the firm's asset risk, its leverage ratio, and the non-diversification of the private firm's owner, while taxes are negatively related to the private firm premium.",

author = "M. Abudy and Simon Benninga and Efrat Shust",

year = "2015",

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note = "17th EBES 2015 conference ; Conference date: 12-10-2015 Through 14-10-2015",

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T1 - The Cost of Equity for Private Firms

AU - Abudy, M.

AU - Benninga, Simon

AU - Shust, Efrat

PY - 2015

Y1 - 2015

N2 - The paper presents a method for calculating the cost of equity capital for the non-marketable securities of private firms and its difference from the cost of equity capital of an all else equal public firm (the private firm premium). The method is based on a theoretical framework that assumes the investor is undiversified due to her holdings in non-marketable securities. We implement the method for both unlevered and levered firms, and also consider the effect of taxes. The findings indicate that the private firm premium increases with the firm's asset risk, its leverage ratio, and the non-diversification of the private firm's owner, while taxes are negatively related to the private firm premium.

AB - The paper presents a method for calculating the cost of equity capital for the non-marketable securities of private firms and its difference from the cost of equity capital of an all else equal public firm (the private firm premium). The method is based on a theoretical framework that assumes the investor is undiversified due to her holdings in non-marketable securities. We implement the method for both unlevered and levered firms, and also consider the effect of taxes. The findings indicate that the private firm premium increases with the firm's asset risk, its leverage ratio, and the non-diversification of the private firm's owner, while taxes are negatively related to the private firm premium.

M3 - Paper

T2 - 17th EBES 2015 conference

Y2 - 12 October 2015 through 14 October 2015

ER -

The Cost of Equity for Private Firms

Abstract

Conference

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17th EBES 2015 conference

Cite this