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Based on the linear decomposition of a firm's beta on the betas of its growth options and its Assets in Place, we propose a feedback algorithm to estimate the latter. Our proposal is founded on the existence of risk classes defined by a specific level of systematic risk for current business and growth opportunities. We test our model on a sample of US firms over the period 1994-2007, by identifying risk classes with industry groups as defined by Fama-French's 48-segment classification (Fama and French, 1997). Our results confirm rapid convergence of estimated parameters, and values which are quite consistent with the real option approach predictions. Our model addresses a practical problem which is yet to be resolved and is crucial for valuing firms and capital budgeting decisions. Empirical results are encouraging and shed new light on the problem of estimating the cost of capital.

Using and international sample of commercial banks over the period 1996-2006, our study analyzes if bank’s specific factors and the legal environment in which they operate affect the board’s composition. We consider the dual role of the board as both monitor and advisor. Results show that there is no optimal board for every bank but it depends on several variables such as the bank’s size, the ownership concentration, the growth opportunities and the monitoring power of the country’s authorities. Our results lead us to a warning related to the general recommendations included in the codes of good governance because each bank needs a specific board of directors.

This paper analyzes the influence of financial leverage decisions, dividend payout policies and the ownership structure on the firm market value when companies either face, or do not face, profitable growth opportunities. We use a sample of 101 large non-financial publicly traded Spanish companies. Our results confirm the relevance of debt and dividends in terms of firm value creation by showing a negative relationship between firm value and leverage in the presence of growth opportunities. On the contrary, this relationship turns out to be positive when firms have no profitable investment projects and dividends show an outstanding role in improving value creation. Our results also demonstrate the relevance of ownership structure in the allocation of firm resources.