Use of Published Regression Equations In Determining Size Premia

Calculation of robust cost of equity estimates has recently become easier due to publications and online tools available by subscription from Duff & Phelps Corporation. In particular, the 2014 Valuation Handbook contains the regression equations for the portfolios constructed from the CRSP data and allows the practitioner to compute a more refined estimate of a cost of equity capital for the subject company. The regression equations should be applied to as many company-specific metrics as possible, allowing for a range of estimates that may then be evaluated by the valuation expert. As Jim Harrington of Duff & Phelps has stated, this allows for “more finesse” in the computation of the cost of equity estimate.