Economics and Rural Development, Volume 8, Number 2

Cost of Equity Capital in Agricultural Organizations: Theoretical Approach and Empirical Analysis

Vilija Aleknevičienė
Aleksandras Stulginskis University


The paper presents the methodology for estimation of the cost of equity capital in agricultural organizations. This methodology consists of two methods: modified CAPM and long-term ROE. The organizations in this sector of industry – family farms and agri-cultural companies – are family controlled or closely held. Being undiversified investors the owners of such organizations assume to-tal risk, not only systematic one. Considering the undiversification of investors, systematic risk is replaced by total risk in CAPM, and accounting information is used instead of market information. OMXBB index is chosen as a market portfolio. As it is dangerous to rely on one method, long-term ROE is applied as additional method. The cost of equity capital is calculated in all Lithuanian agri-cultural organizations, in family farms and in agricultural companies. The research results show that modified CAPM is applicable for estimation of cost of equity capital in agricultural companies, but there are some problems with the application of modified CAPM in family farms.

Keyword(s): cost of equity capital, CAPM, long-term ROE, agricultural organizations


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Economics and Rural Development ISSN 1822-3346 / eISSN 2345-0347

This journal is published under the terms of the Creative Commons Attribution-Noncommercial 3.0 Unported License. Responsible editors: Prof. Dr Vilija Alekneviciene, Dr Gunita Mazure.