The equity premium puzzle: empirical evidence for the "Korea Discount"

Abstract

This study examines the cost of equity capital (COC) and the factors that influence the COC of listed Korean companies, and compares the COC of Korean companies with that of companies from 31 selected countries. The major research question is whether companies that are listed in an emerging market have a disadvantage as they are underpriced through a higher COC (as compared with companies that are traded in developed markets). Consistent with the "Korea Discount," we find that the COC is significantly higher for Korean companies than for companies in other countries after controlling for other relevant factors. However, the "Korea Discount" has significantly eased in recent years.