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Technology and Economics (1991) / Chapter Skim
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Technology and the Cost of Equity Capital
Pages 65-76

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From page 66...
... The average price-to-earnings ratio for corporations listed on the New York Stock Exchange is currently about 14. The corresponding figure for the Tokyo Stock Exchange, corrected for accounting differences, is roughly 40.
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From page 68...
... nonfinancial corporations in selected years. TABLE 1 The Cost of Corporate Debt and Equity in the United States, percent 1974 1981 1988 Interest rate on AAA bonds, i 8.60 14.20 9.70 Inflation rates, ~8.60 9.20 3.20 Real interest rater, is 0 5.00 6.50 Corporate tax rates, ~0.52 0.50 0.42 Real cost of debt after taxes4 - .50 -2.10 2.40 Nominal cost of equity 16.20 16.30 9.50 Real cost of equity 7.60 7.10 6.20 NOTES: (1)
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From page 71...
... Tax variables include the tax rate on corporate income, the investment tax credit, and the depreciation rate allowed for a given type of asset. For soft investments, however, the cost of capital is simply the cost of equity.
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From page 72...
... The first study to include risk, Hatsopoulos (1983) , found that the principal factor driving the U.S.-lapan cost-of-capital gap was the high leverage of Japanese corporations.
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From page 75...
... Convergence requires appropriate economic and tax policies Mat gradually eliminate We current bias favoring consumption and debt relative to equity finance.
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Key Terms

  • tax code
  • capital gains
  • corporate tax
  • capital formation
  • equity holders

  • soft investments
  • discount rate
  • corporate equities
  • industrialized nations
  • depreciation rate

  • corporate income
  • tax rates
  • soft assets
  • corporate taxation
  • thermo electron

  • hard assets
  • equity capital
  • stock exchange
  • japanese corporations
  • tax deduction

  • electron corporation
  • current income
  • japan provides
  • corporations listed
  • accounting rules

  • countries provide
  • recent estimates
  • differing economic
  • variables include
  • competitive industrialized


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