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- Title
THE COST OF CAPITAL AND THE MARKET POWER OF FIRMS: A COMMENT.
- Authors
Curley, Anthony J.; Hexter, J. Lawrence; Choi, Dosoung
- Abstract
The relationship between market structure and the cost of equity capital can only be addressed empirically. Unfortunately, the empirical evidence which is available is contradictory. The article extends previous studies in an attempt to at least partially resolve this important question. Researcher Timothy G. Sullivan in 1978 observed a generally significant negative relationship between concentration and beta, for both observed levered returns and reconstructed unlevered returns. Both studies by researchers Ronald W. Melizher, David F. Rush and Daryl N. Winn in 1976 and Sullivan found no evidence that powerful firms realize excess differential returns. should increase, offsetting the leverage effect. Given evidence of efficient pricing in the securities market, market power should influence beta only through those factors which influence the level and variability of the stream of profits. In that case, there is The important question is the relationship between market power and the cost of equity capital when profitability measures have been considered.
- Subjects
INDUSTRIAL management; INDUSTRIAL organization (Economic theory); MARKETING; CAPITAL costs; PRICING; RATE of return; SHEPHERD, William; FINANCIAL markets; PROFIT; ECONOMICS
- Publication
Review of Economics & Statistics, 1982, Vol 64, Issue 3, p519
- ISSN
0034-6535
- Publication type
Article
- DOI
10.2307/1925954