Journal article

Business Strategy and the Cost of Equity Capital: An Evaluation of Pure versus Hybrid Business Strategies

Mehdi Khedmati, Edwin Kia Yang Lim, Vic Naiker, Farshid Navissi

Journal of Management Accounting Research | American Accounting Association | Published : 2019


We examine the effect of pure (product differentiation or cost leadership) versus hybrid (a mix of product differentiation and cost leadership) business strategies on the cost of equity capital. Our results suggest that firms with a pure, relative to a hybrid, business strategy have a significantly lower cost of equity, and the cost of equity effect is equally driven by pure product differentiation and pure cost leadership strategies. We also find that firms following a pure business strategy are associated with lower systematic risk. Further, the lower cost of equity effect of a pure product differentiation strategy is more pronounced in high-technology industries, and in regions with great..

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