A Survey of External and Internal Factors Influencing the Cost of Equity: The Case of Czech Companies


  • Natalia Mokhova Brno University of Technology Faculty of Business and Management Kolejni 2906/4 CZ-612 00 Brno
  • Marek Zinecker Brno University of Technology Faculty of Business and Management Kolejni 2906/4 CZ-612 00 Brno




Cost of Equity, Capital, External Factors, Monetary Policy, Fiscal Policy, Financial Stability, Internal Factors, Disclosure, Corporate Governance, Social Factors, Survey, Czech Republic


The cost of equity is an essential element of a business' financial decision-making process, which is exposed to the influence of a number of internal and external factors. This study intends to answer the question on what is the perceived impact of external and internal factors on the cost of equity from the perspective of Czech CFOs. The survey was carried out in 2015 and our sample covers 40 respondents operating in large and non-financial joint-stock companies. The findings show that there is a gap between the theory and practice and that the country’s specifics, in particular the low level of the financial market development, play a significant role in the perception of cost of equity capital determinants. First, the most commonly used cost of equity estimation approach is based on average historical returns. This method has been indicated by the CFOs across all firms. A considerably large number of the CFOs think that the ownership structure, dividend policy, ability to forecast financial results, stability of company´s earnings and flexibility in external capital raising are the internal factors with the most significant impact on the cost of equity. Otherwise, a rather low number of respondents consider the information asymmetry, corporate governance and financial performance as having a strong impact on the cost of equity, although several financial theories emphasize the role of these internal determinants. In regard to the external factors, a substantial majority of the respondents acknowledges that the long- and short-term interest rates as well as inflation, sovereign debt and risks linked to the banking system and financial market strongly affect the cost of equity. The responses are, however, unambiguous concerning the direction of such an impact. Our results indicate a significant gap between the theoretical approaches and system-relevant knowledge and experience on the side of respondents. We believe that our findings provide valuable implications for companies, banks, stock exchanges and macroeconomic policy makers while formulating new strategies in the specific environment of the Central and Eastern European countries.

DOI: http://dx.doi.org/10.5755/j01.ee.30.2.19221

Author Biography

Marek Zinecker, Brno University of Technology Faculty of Business and Management Kolejni 2906/4 CZ-612 00 Brno

Department of Economics

Associate Professor

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