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An Empirical Analysis of Cost of Equity of Selected Firms in Nigeria

Kazeem S BELAU, Richard O AKINGUNOLA PhD, Bamidele M ILO PhD, Akinwumi S ILEMOBAYO

Abstract

Equity holders bear the residual risk of their firms and receive dividend as leftover. These firms however have different returns on investment, making it necessary to examine the cost and returns on investment on equity shares in order to determine the comparative performance of each stock for investment purpose. This study employed the Capital Asset Pricing Model (CAPM) to determine the cost of equity of ten listed firms on the Nigerian Exchange (NGX) Limited. Coefficient of variation was used to rank each firm based on their mean and variance. The study found that the annual cost of equities among firms in Nigeria range from 4 per cent to 8 per cent. Firms in the banking sector perform better than non-banking firms which may be attributed to high regulation of banks in Nigeria.

Keywords

Cost of Equity; Capital Asset Pricing Model; Investment Performance; Coefficient of Variation; Nigerian Exchange Group.

References

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