The goal of this paper is to propose new methods to measure the effective exposure to country risk of emerging-market companies. Starting from Damodaran (2003), we propose three new approaches: the “Prospective Lambda”, the “Retrospective Lambda” and the “Company Effective Risk Premium”. We tested our new measures of a company’s exposure to country risk on Brazilian companies listed on the Bovespa Index. The results confirm that the new approaches can be effectively applied to stable-growth companies, providing with a more reliable estimate of the premium effectively requested by investors in the past. Applying the new approaches, the cost of equity reflects the effective exposure of a company to country risk without being over- or underestimated, as is the case with other existing approaches.
Firm valuation in emerging markets and the exposure to country risk / Roggi, Oliviero; Giannozzi, Alessandro; Baglioni, Tommaso. - In: GLOBAL JOURNAL OF MANAGEMENT AND BUSINESS RESEARCH. - ISSN 0975-5853. - STAMPA. - 16:(2016), pp. 10-30.
Firm valuation in emerging markets and the exposure to country risk
ROGGI, OLIVIERO;GIANNOZZI, ALESSANDRO;BAGLIONI, TOMMASO
2016
Abstract
The goal of this paper is to propose new methods to measure the effective exposure to country risk of emerging-market companies. Starting from Damodaran (2003), we propose three new approaches: the “Prospective Lambda”, the “Retrospective Lambda” and the “Company Effective Risk Premium”. We tested our new measures of a company’s exposure to country risk on Brazilian companies listed on the Bovespa Index. The results confirm that the new approaches can be effectively applied to stable-growth companies, providing with a more reliable estimate of the premium effectively requested by investors in the past. Applying the new approaches, the cost of equity reflects the effective exposure of a company to country risk without being over- or underestimated, as is the case with other existing approaches.File | Dimensione | Formato | |
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