Year of Graduation
The Influence of the Relational Capital as a Component of Intellectual Capital on the Cost of Equity
Strategic Corporate Finance
In this paper the impact of relational capital as one of the component of intellectual capital on the cost of equity of companies performing in BRICS is analyzed. The urgency of the research is determined by, on the one hand, investors’ needs to determine the rate of return, on the other hand, importance of intellectual capital for company under high competency and current economic conditions in emerging markets. Limited number of researches dedicated to determining the relation of the cost of equity and relational capital even in developed markets confirms the importance of this paper. Empirical testing of cost of equity dependence on relational capital was conducted under the three-factor model proposed by Fama and French with inclusion of additional factor - relational capital into the model. Under the method rolling regression was applied. It is concluded that higher relation capital of a company performing in emerging markets increases a company risk for an investor that leads to higher cost of equity. This risk may be determined by the nature of relational capital in emerging markets formed due to so-called “administrative resource”, instead of effective performance of a company. During politic and economic disruptions a company may lose this component of intellectual capital that imposes higher risk.