US and British academics to study cost of capital

Prominent academics from the United States and Britain have been appointed to a panel to advise the Commerce Commission about guidelines for estimating the cost of capital.

Last October the commission released draft guidelines setting out the way it now estimates a firm's cost of capital, an important input into most of its regulatory decisions.

The panel was established in line with suggestions in some of the 23 submissions made on the document.

"In providing advice to the commission, the panel will focus on both the theoretical and practical issues involved in estimating a firm's cost of capital for regulatory purposes," the commission said.

The panel is expected to provide a report outlining its advice to the commission by mid-December.

Its members are Professor Bradford Cornell, Professor Julian Franks and Dr Martin Lally.

Prof Cornell is a visiting professor of financial economics at the California Institute of Technology, and was previously professor of finance and director of the Bank of America Research Centre, Anderson Graduate School of Management, UCLA.

Prof Franks is professor of finance at London Business School, and is researching the area of corporate finance and governance, investment, and regulation.

Dr Lally is an associate professor in the School of Economics and Finance at Victoria University of Wellington, whose research interests include the market risk premium and the cost of capital.

- NZPA