Cost of Capital – The Effect to the Firm Value and Profitability; Empirical Evidences in Case of Personal Goods (Textile) Sector of KSE 100 Index

Abstract

In this research, we examine whether and how accounting information about a firm manifests in its cost of capital. We demonstrate that quality of accounting information can influence the impact of cost of capital on Firm Value and Profitability and found empirical evidence about cost of capital and its performance effect on Firm Value and Profitability. We also found the evidence that there is a significant impact of Weighted Average Cost of Capital on Firm Value and Return on Asset.There is a positive effect between Firm Size and Return on Assets if there is any change occurs in Independent Variables except one variable i.e. WACC. WACC gives negative impact on Firm Value and Return on Assets. Any change in WACC can affect the return on assets of the firm. Another evidence found that there is no effect of Total Debt Ratio on Return on Asset.

Keywords: Return on Asset (ROA), Firm Value (Tobin Q), Weighted Average Cost of Capital (WACC), Total Debt Ratio, Size (Total Assets), Gross Domestic Product (GDP).