The effects of international integration on cost of capital and firm valuation models

The development of the financial markets as a result of globalization, the emergence of multinational corporations, international studies of different blocks of countries to create an economic union and acceptance of international common accounting language brought great convenience for company valuation. Today the countries especially who implement the required regulations of the global economy correctly have portfolio and direct investments all over the world. The cost of capital and asset valuation models have great significance in terms of the world of finance. The effect of firm-specific factors on stock returns and determining the explanatory powers of these factors are the basis of many studies carried out in recent years and still being carried out today related with developed and developing countries. In this study; How the difference of the estimation of cost of equity capital of the firms of Istanbul Stock Exchange (ISE) which have the level of exchange rate pressure high (or low) and local and global Capital Asset Pricing Model (CAPM) with single factor is high (or low) would be researched. The country wide cost of capital and asset valuation models are insufficient in finding the value of the company within the framework of international integration. This study aims to fill the gaps. Basically the data of the stocks of publicly traded companies and financial data of their financial statements in the ISE would be used in this research. As a result the difference of the estimation cost of equity capital of the local and global CAPM is the risk relates to the firm. With the use of putting forward this relation; The change on capital costs due to changes in the exchange rate risk can be achieved. Thus company values can be found in a more realistic way and more reliable variables on stock prices can be presented to investors. With the structure of this study it is believed to be the first in Turkey.