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Journal of Competitiveness

The cost of equity of Ukrainian food processing companies as a measure of competitiveness

Tetiana Konieva, Daniel Stavárek

corporate financing policy, cost of equity, food processing industry, Ukraine

Each company carries out its activities with different financial resources. Their use then affects the cost of equity and profitability of investments, which determines the possibility to compete in the capital market. Thus, this study is provided in order to define the financing policy with a proper capital structure that is able to minimize the cost of equity of the company in order to improve its financial competitiveness. The research focuses on Ukrainian food processing companies in the period 2013-2020. The cost of equity is calculated using the modified CAPM model and the methodology of Aswath Damoradan. The US Treasury bond rate as the risk-free rate, equity risk premium, and unlevered β-coefficient for food processing companies in emerging markets were taken from his databases. The leveraged β-coefficient was determined, considering the interest-bearing liabilities and the trade payable of the companies analysed. The cost of equity and its weighted cost were calculated within variants of the conservative, moderate, and aggressive financing policies. The results indicate that the lowest cost of equity occurs in the variants of conservative, moderate, and super-aggressive financing policies based on the financial independence of the company. Conversely, the lowest weighted cost of equity is identified for the aggressive and super-aggressive financing policies with negligible equity but significant use of non-interestbearing debt. The link between the cost of equity (its weighted cost) and the use of debt is rather weak in the sample of firms examined. Although the relation is direct for the cost of equity, the correlation coefficients show an inverse relationship for its weighted cost. This confirms that the choice of an appropriate variant of financing policy can lead to minimising the cost of equity and increasing the financial competitiveness of the firm.

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Konieva, T., & Stavárek, D. (2023). The cost of equity of Ukrainian food processing companies as a measure of competitiveness. Journal of Competitiveness, 15(2), 167-187. https://doi.org/10.7441/joc.2023.02.09

Journal of Competitiveness


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ISSN 1804-171X (Print); eISSN 1804-1728 (On-line)

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