THE EFFECT OF LEVERAGE ON THE COST OF EQUITY CAPITAL OF ELECTRIC UTILITY FIRMS.

The article presents an empirical investigation into the impact of financial leverage on the cost of equity capital as seen in electric utility firms. The theoretical significance of financial leverage on capital costs is reviewed, highlighting several propositional models without research validation. Particular challenges of avoiding irrelevant correlations in cost of equity capital measurements are mentioned from previous studies and a new methodology is presented. Conclusions are offered supporting the basic premise of the theory.