Abstract
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.
Highlights
Running a business operating on an open and competitive market requires building an appropriate capital structure
The company perspective shows the cost of capital as one of the main factors influencing companies’ decisions in crediting the capital structure and optimization future path of financial decisions
We present the ANOVA Kruskal–Wallis test and the multiple comparisons test results, with differences between energy groups of companies divided according to the Thomson Reuters Business Classification (TRBC) classification
Summary
Running a business operating on an open and competitive market requires building an appropriate capital structure. Most of the research conducted in this area focuses on capital structure determinants, such as profitability, development opportunities, company size, assets, and tax shields [1] These factors are important in assessing the effectiveness of the functioning of companies. The key element in assessing companies’ effectiveness is the possibility of acquiring sources of financing that will not increase the cost of capital level but enhance a level of profitability. It could be assessed from two perspectives: internally by the company managers/owners and market investors, or by its competitors. It can reflect the potential dividend payouts or buyback of shares for redemption that can appear on the market [7]
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