Papers

Corporate Discount Rates
Niels Joachim Gormsen and Kilian Huber – Working paper, September 2022
A new database of firms’ discount rates and costs of capital. The perceived cost of capital is related to the financial cost of capital, but the wedge between discount rates and the perceived cost of capital has grown substantially over the past decades. These dynamics have important implications for how interest rates and asset prices affect corporate investment.

Equity Factors and Firms’ Perceived Cost of Capital
Niels Joachim Gormsen and Kilian Huber – Working Paper, January 2023
While the perceived cost of capital reflects traditional factors such as the market, size, and value factors, it is unrelated to most risk factors studied in asset pricing. We quantify large wedges between firms’ perceived cost of capital and the cost of capital implied by measures of expected returns from financial markets.

Climate Capitalists
Niels Joachim Gormsen, Kilian Huber, and Sangmin Oh – Working Paper, February 2023
“Green investing” has real effects if green firms actually reduce their perceived cost of capital and discount rate in response to green investing. We find that the difference in the perceived cost of capital between the greenest and the brownest firms has fallen since 2016, concurrent with the rise of green investing. Discount rates followed a similar pattern. A survey sheds light on the mechanisms. In a simple model, the observed differences reduce firm-level emissions by 20 percent.