The cost of equity of Ukrainian food processing companies as a measure of competitiveness
Tetiana Konieva, Daniel Stavárek
Keywords:
corporate financing policy, cost of equity, food processing industry, Ukraine
Abstract:
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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 The cost of equity of Ukrainian food processing companies as a measure of competitiveness [PDF file] [Filesize: 442.41 KB]
 10.7441/joc.2023.02.09
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
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