Global Evidence on Growth Opportunities, Beta, and the Cost of Capital
Dr. Sebastian Lobe, Olena Walter, Dr. Christian Walkshäusl

Abstract
This study investigates the influence of firms' growth opportunities on their cost of capital across industries using an international sample of 28 developed and 22 emerging markets. Our results based on more than 21,000 firms and 167,000 firm-years corroborate that a high magnitude of firms' growth opportunities leads to a higher firms' unlevered beta. Moreover, we establish that for the majority of sectors in our global sample, the beta of growth opportunities is greater than the beta of assets-in-place. Failure to account for growth opportunities can underestimate the cost of equity by up to 3 percentage points, depending on the industry.

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