Common ownership’s impact on the cost of equity capital

: an empirical analysis of the DAX-30

Abstract

Common ownership has been rising at an extraordinary rate over the past years. Common ownership structures can have negative and positive effects in the cost of equity capital of firms. On one hand, the increase of collaboration between commonly owned firms will increase their cashflows covariance, resulting in a higher cost of equity capital. On the other hand, commonly owned firms’ anticompetitive behaviors will allow them to expand into new markets, internalize negative externalities and increase voluntary disclosure, resulting in a reduction of the cost of equity capital. In this thesis, I empirically investigate the impact of common ownership on the cost of equity capital of firms in the DAX-30 index. To do so, I regress Ohlson & Juettner-Nauroth (2005)’s cost of equity (discounted of the risk free rate) on three different proxies of common ownership. The estimation results are in line with previous results in the literature for U.S. firms, but also suggest that the impact of common ownership on the cost of equity capital depends critically on the proxy of common ownership used.

Date of Award	17 Jul 2023
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Ricardo Ribeiro (Supervisor)