When Stated vs. Modeled Cost-of-Equity Diverges: Deal Incentives & Valuation Signals
Gist Investment bankers’ disclosed cost of equity (COE) estimates from takeover filings are significantly related to beta and firm size, but show weak or contradictory relations with many other firm-level risk factors—differing from common academic asset-pricing models. Banks assign higher COEs in management buyouts, lowering implied valuation of targets, which appears tied to incentive structures …
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