Energy Sector Risk and Cost of Capital Assessment—Companies and Investors Perspective
This paper aims to identify the costs of capital in a group of companies from the energy sector by including an investor and market risk approach. The study also concerns the company’s Weighted Average Cost of Capital (WACC) cost intra-industry analysis related to sector characteristics such as tota...
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| Format: | Article |
| Language: | English |
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MDPI AG
2021-03-01
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| Series: | Energies |
| Subjects: | |
| Online Access: | https://www.mdpi.com/1996-1073/14/6/1613 |
| _version_ | 1797541400130093056 |
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| author | Justyna Franc-Dąbrowska Magdalena Mądra-Sawicka Anna Milewska |
| author_facet | Justyna Franc-Dąbrowska Magdalena Mądra-Sawicka Anna Milewska |
| author_sort | Justyna Franc-Dąbrowska |
| collection | DOAJ |
| description | This paper aims to identify the costs of capital in a group of companies from the energy sector by including an investor and market risk approach. The study also concerns the company’s Weighted Average Cost of Capital (WACC) cost intra-industry analysis related to sector characteristics such as total assets, revenues, market capitalization, and companies’ age. In order to assess the intergroup relationships, basic correlation relationships were compared and a nonparametric test of variance was performed. The period under study covered the years 2015–2019. The conducted research evaluates groups of companies that dedicated their activity to a particular energy intra-industry division under numerous regulations in Europe. The study contributes to assessing the level of risk among energy listed companies in European capital markets based on capital structure valuation. The study results underline the role of the cost of equity financing, which was twice as high as the cost of debt. The highest WACC was related to the Beta indicator that also expressed the political and regulatory risk over the investigated period. Across debt cost analysis, the role of effective tax rate decreased the level of WACC. The highest level of WACC was noticed among uranium and integrated oil and gas companies. The study contributes to information asymmetry theory related to the cost of capital assumptions. |
| first_indexed | 2024-03-10T13:14:34Z |
| format | Article |
| id | doaj.art-7668f92dca8d41c08f3f38b56429ddaa |
| institution | Directory Open Access Journal |
| issn | 1996-1073 |
| language | English |
| last_indexed | 2024-03-10T13:14:34Z |
| publishDate | 2021-03-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Energies |
| spelling | doaj.art-7668f92dca8d41c08f3f38b56429ddaa2023-11-21T10:28:25ZengMDPI AGEnergies1996-10732021-03-01146161310.3390/en14061613Energy Sector Risk and Cost of Capital Assessment—Companies and Investors PerspectiveJustyna Franc-Dąbrowska0Magdalena Mądra-Sawicka1Anna Milewska2Institute of Economics and Finance, Warsaw University of Life Sciences—SGGW, 02-787 Warsaw, PolandInstitute of Economics and Finance, Warsaw University of Life Sciences—SGGW, 02-787 Warsaw, PolandInstitute of Economics and Finance, Warsaw University of Life Sciences—SGGW, 02-787 Warsaw, PolandThis paper aims to identify the costs of capital in a group of companies from the energy sector by including an investor and market risk approach. The study also concerns the company’s Weighted Average Cost of Capital (WACC) cost intra-industry analysis related to sector characteristics such as total assets, revenues, market capitalization, and companies’ age. In order to assess the intergroup relationships, basic correlation relationships were compared and a nonparametric test of variance was performed. The period under study covered the years 2015–2019. The conducted research evaluates groups of companies that dedicated their activity to a particular energy intra-industry division under numerous regulations in Europe. The study contributes to assessing the level of risk among energy listed companies in European capital markets based on capital structure valuation. The study results underline the role of the cost of equity financing, which was twice as high as the cost of debt. The highest WACC was related to the Beta indicator that also expressed the political and regulatory risk over the investigated period. Across debt cost analysis, the role of effective tax rate decreased the level of WACC. The highest level of WACC was noticed among uranium and integrated oil and gas companies. The study contributes to information asymmetry theory related to the cost of capital assumptions.https://www.mdpi.com/1996-1073/14/6/1613cost of capitalWACCEuropean energy sectorintra-industry analysis |
| spellingShingle | Justyna Franc-Dąbrowska Magdalena Mądra-Sawicka Anna Milewska Energy Sector Risk and Cost of Capital Assessment—Companies and Investors Perspective Energies cost of capital WACC European energy sector intra-industry analysis |
| title | Energy Sector Risk and Cost of Capital Assessment—Companies and Investors Perspective |
| title_full | Energy Sector Risk and Cost of Capital Assessment—Companies and Investors Perspective |
| title_fullStr | Energy Sector Risk and Cost of Capital Assessment—Companies and Investors Perspective |
| title_full_unstemmed | Energy Sector Risk and Cost of Capital Assessment—Companies and Investors Perspective |
| title_short | Energy Sector Risk and Cost of Capital Assessment—Companies and Investors Perspective |
| title_sort | energy sector risk and cost of capital assessment companies and investors perspective |
| topic | cost of capital WACC European energy sector intra-industry analysis |
| url | https://www.mdpi.com/1996-1073/14/6/1613 |
| work_keys_str_mv | AT justynafrancdabrowska energysectorriskandcostofcapitalassessmentcompaniesandinvestorsperspective AT magdalenamadrasawicka energysectorriskandcostofcapitalassessmentcompaniesandinvestorsperspective AT annamilewska energysectorriskandcostofcapitalassessmentcompaniesandinvestorsperspective |