Michele Di Marcantonio

Beyond CAPM: estimating the cost of equity considering idiosyncratic risks

The present study proposes a new evaluation approach aimed at estimating the cost of equity through standardized models which consider an innovative set of firm-specific information on the main unsystematic risks which are typical of any business. Our objective is extending the Capital Asset Pricing Model (CAPM) by defining a standard formula for quantifying the premium for certain idiosyncratic risks as a function of a new set of firm-specific quantitative information. We define two econometric models, for listed and non-listed firms respectively, which consider five idiosyncratic risk factors: firm size, value factor, operating risks, financial structure and stock market price volatility. The models were tested on a sample of European non-financial companies. The empirical results show that while the CAPM systematically underestimates the cost of equity, the proposed models correctly estimate its expected value; furthermore, they show a slight improvement also in terms of estimates’ volatility. Due to their efficacy and ease of use, the proposed models represent a valid practical tool for investors, analysts and professional evaluators. This work contributes to the existing literature by proposing a typologically innovative extension of the CAPM set of explanatory variables, defining and testing new models for the estimation of the unsystematic risks’ spread of the cost of equity based on an original set of firm-specific accounting and market information.

Does Intellectual Capital Affect Business Performance

The aim of this paper is to assess the impact of intellectual capital (IC) on firms’ financial performance with reference to a sample of companies operating in the European Union (EU) area during the period from 2006 to 2013. The analyses are further differentiated by country of domicile, industry sector, and historical period (pre-crisis and crisis). We investigate whether the value of the components of IC is a relevant factor that influences firms’ performance, proposing and testing a modified version of the value added intellectual capital (VAIC TM ) model which also considers country-specific differences in terms of default risk. The empirical results evidence the relevance of the information on IC disclosed by companies. Differences arise depending on the reference country, industry, and historical period examined. The main limitations of the research are the unbalanced structure of the sample among countries and industries and the specificity of the examined sample (listed firms applying IAS/IFRS system). The main implication of the study is that, since we demonstrate the value relevance of IC, our findings could be of interest for standard setters for defining a standard (qualitative and quantitative) level of information on human resources to be disclosed by companies in their financial statements. Our contribution to the literature is the proposal of some relevant modifications to the original VAIC TM model and providing new evidence on the

Estimating credit default swap spreads using accounting data, market quotes and credit ratings: the European Banks Case

The aim of this paper is to define a model for estimating the theoretical Credit Default Swap spread of European banks considering firms’ accounting data, market quotes, official ratings and macroeconomic variables. We detect a significant log-linear relation between Credit Default Swaps spreads and four explanatory variables determined on the basis of the stock price, the financial structure, the equity composition, the incidence of the reserve for loan losses on total loans, the official ratings and macroeconomic indicators of the country of domicile of each company. The empirical results show that for the period from 2008 to 2013 the model has a high statistical significance and a remarkable explanatory power. Our main contribution to the existing literature is the exploration of new determinants of banks’ credit risk and the provision of new evidence on the determinants of banks’ default risk in the crisis and post-crisis European context. Furthermore, we define a practical model for estimating Credit Default Swap spreads of banks suitable for professional use.

An Assessment of the Accounting Perspective on Intellectual Capital and Some Results from the European Union

Firms can be seen as a socio-technical system composed of assets, people, operations, etc. The social aspect is very important considering that people, with different expertise and needs, are always interacting with firms for various reasons and in various capacities (investors, suppliers, employees, etc.).