In the last issue, we presented results of several surveys on the various resources practitioners use for estimating cost of capital. Another perspective comes from Kroll, which recently had a webinar during which it polled the audience of 706 participants on several topics (15% of the audience consisted of Kroll employees). One question was: “Which methods/data sources do you use as the equity (market) risk premium (ERP) input in your cost of equity estimates?” Here are the results (respondents could select all that applied):
| Kroll U.S. recommended ERP | 58.5% |
| Long-term historical average, published by Kroll | 35.7% |
| Professor Damodaran’s implied ERP | 23.7% |
| Supply-side ERP, published by Kroll | 22.0% |
| Other historical or implied ERP sources (e.g., Market-Risk-Premia.com) | 14.7% |
| Other/not applicable | 13.5% |
| BVR Cost of Capital Professional | 9.0% |
| Professor Pablo Fernandez’s survey of ERPs | 4.1% |
Poll results on other topics include:
- The percentage of survey participants who conducted valuations primarily based in North America was 78.4%;
- The percentage of survey participants who anticipate a recession will occur in 2024 in their home country was 43.3%;
- Thirty-eight percent of respondents are planning to start considering ESG factors in their valuations; and
- More than half (50.8%) of the respondents incorporate country risk adjustments directly in their discount rate estimates.
For more details, Kroll put together a survey report of the findings, and it is available if you click here. The webinar was conducted by Carla Nunes, managing director of valuation advisory services, and Jim Harrington, director of valuation services, both with Kroll. A replay is available if you click here.