Fundamental risk determinants of the cost of equity: The case of Moroccan companies listed on the stock exchange
Lamghari, Sana
Fundamental risk determinants of the cost of equity: The case of Moroccan companies listed on the stock exchange - 2024.
85
The cost of capital is a key factor in a company’s financial decisions as well as a key tool for its competitiveness. However, at the level of listed Moroccan companies, statistical information on the cost of capital is not standardized. It is generally produced by traditional models based on market risk alone, or on the simple explicit cost of project financing. This work questions the traditional models of the cost of capital (Markowitz model and CAPM) and takes into account multifactor models of the fundamental determinants of the cost of capital. The quantitative study is based on a sample of forty-five listed Moroccan companies and uses panel econometric tools. The aim is to propose a fixed-effects econometric model of the fundamental determinants of the cost of capital. The results of our study are based on identifying the fundamental determinants of the cost of capital in listed Moroccan companies. These include the momentum effect, the nature of balance sheet assets, sector performance, the volatility of financial securities, and the company’s sales growth. Taking into account the determinants of the cost of capital will allow companies to control this cost over the long term and to direct their financial, industrial, and commercial activities according to future forecasts related to these determinants. Moreover, the cost of capital can be used as a means of assessing the financial performance of portfolios of financial assets.
Fundamental risk determinants of the cost of equity: The case of Moroccan companies listed on the stock exchange - 2024.
85
The cost of capital is a key factor in a company’s financial decisions as well as a key tool for its competitiveness. However, at the level of listed Moroccan companies, statistical information on the cost of capital is not standardized. It is generally produced by traditional models based on market risk alone, or on the simple explicit cost of project financing. This work questions the traditional models of the cost of capital (Markowitz model and CAPM) and takes into account multifactor models of the fundamental determinants of the cost of capital. The quantitative study is based on a sample of forty-five listed Moroccan companies and uses panel econometric tools. The aim is to propose a fixed-effects econometric model of the fundamental determinants of the cost of capital. The results of our study are based on identifying the fundamental determinants of the cost of capital in listed Moroccan companies. These include the momentum effect, the nature of balance sheet assets, sector performance, the volatility of financial securities, and the company’s sales growth. Taking into account the determinants of the cost of capital will allow companies to control this cost over the long term and to direct their financial, industrial, and commercial activities according to future forecasts related to these determinants. Moreover, the cost of capital can be used as a means of assessing the financial performance of portfolios of financial assets.
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