Globalization of Equity Markets and the Cost of Capital / Rene M. Stulz.

Format:

Book

Author/Creator:

Stulz, Rene M.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w7021.

NBER working paper series no. w7021

Language:

English

Subjects (All):

Capital market.

Capital costs.

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1999.

Cambridge, Mass. : National Bureau of Economic Research, 1999.

Summary:

This paper examines the impact of globalization on the cost of equity capital. We argue that the cost of equity capital decreases because of globalization for two important reasons. First, the expected return that investors require to invest in equity to compensate them for the risk they bear generally falls. Second, the agency costs which make it harder and more expensive for firms to raise funds become less important. The existing empirical evidence is consistent with the theoretical prediction that globalization decreases the cost of capital, but the documented effects are lower than theory leads us to expect. We discuss various reasons for why this is the case.

Notes:

Print version record

March 1999.