The WACC Fallacy: The Real Effects of Using a Unique Discount Rate

• 成果类型: Article
• 署名作者: Krueger, Philipp; Landier, Augustin; Thesmar, David
• 署名单位: University of Geneva; University of Geneva; Universite de Toulouse; Universite Toulouse 1 Capitole; Toulouse School of Economics; Hautes Etudes Commerciales (HEC) Paris; Centre for Economic Policy Research - UK
• 刊物名称: JOURNAL OF FINANCE
• ISSN/ISSBN: 0022-1082
• DOI: 10.1111/jofi.12250
• 发表日期: 2015
• 页码: 1253-1285
• 关键词: internal capital-markets; ceo overconfidence; cash flow; INVESTMENT; diversification; returns; FIRMS

摘要

In this paper, we test whether firms properly adjust for risk in their capital budgeting decisions. If managers use a single discount rate within firms, we expect that conglomerates underinvest (overinvest) in relatively safe (risky) divisions. We measure division relative risk as the difference between the division's asset beta and a firm-wide beta. We establish a robust and significant positive relationship between division-level investment and division relative risk. Next, we measure the value loss due to this behavior in the context of acquisitions. When the bidder's beta is lower than that of the target, announcement returns are significantly lower.