The Cost of Capital

Niels Gormsen, Neubauer Family Assistant Professor of Finance
Kilian Huber, Assistant Professor of Economics

The goal of the project is to construct a large-scale database on the cost of capital and hurdle rates used by managers. The cost of capital, and corporate discount rates more generally, are some of the most important variables in finance, with widespread implications for how capital is allocated in the economy. In theory, the cost of capital and corporate discount rates should be determined by asset  prices, but it is unclear whether this happens in practice. In fact, we know very little about the cost of capital and the hurdle rates managers use in capital budgeting processes. This is mainly due to a lack of data -- the biggest existing database, the Duke-CFO database, has only around 500 observations on corporate discount rates on US public firms. We are constructing a database that is an order of magnitude larger, spanning the entire world and almost two decades. We believe these data will be of high value for the finance research community and spur new research in understanding one of finance’s key variables.

Read working paper "Corporate Discount Rates"

Read working paper "Firms' Perceived Cost of Capital"

Learn more about The Cost of Capital project