Abstract: A Theory of the Valuation of the Firm

Extract

Many people from various professions have long been interested in determining what factors influence common stock prices and the rate of return (or cost of equity capital) which investors expect to obtain from an investment in common stock. The response to this interest has been numerous articles, both theoretical and empirical. A problem of many recent empirical studies is the attempt to explain a complex situation with an oversimplified model which does not explain well interactions among the factors that affect share prices. The present paper does not claim to resolve all the issues that exist but it does attempt to broaden the perspective by developing a more comprehensive theoretical model.