Disaggregating the Implied Cost of Capital

Cost of Capital
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Thursday 12 August 2021

02:00 PM - 03:30 PM



This event is part of the Centre for Financial and Corporate Integrity’s Seminar Series and will present a method to determine the required rate of return of shareholders at business-level viz-a-viz firm-level using the implied cost of capital approach.

Coventry University host

Professor Ahmed Elmasry


Dr Kenneth Baldwin profile photo.

Dr Kenneth Baldwin

Kenneth Baldwin is an Assistant Professor in Finance at Coventry University, and an Associate Member of CFCI. His research interests are the financial and risk management decision-making of Islamic banks, corporate finance, asset valuation, and market microstructure. Prior to academia he spent 25-years in the financial services industry. He is a Chartered Accountant, has a PhD in microeconomic theory, and graduated from Oxford University having studied Physics.

Dr Maryam Alhalboni

Maryam Alhalboni is a lecturer in Finance at York University, and an ex-financial services practitioner.  Maryam has a BSc in Economics, an MSc in Finance and Investment, and a PhD in Finance from the University of Essex. Her research interests are in the areas of Islamic finance, corporate finance, cultural political economy, financial markets, and market microstructure.  The bulk of her papers concentrate on Islamic finance, high-frequency trading, and market liquidity.


The implied cost of capital (ICC) has traditionally only been used to determine the required rate of return of shareholders at firm-level. We extend this method to imply return requirements at business line-level for Islamic banks, which have bifurcated income streams from assets funded by shareholders on the one hand, and investment account holders on the other. We find that the composite ICC is higher than both business line-level ICCs. This finding aligns with mainstream corporate finance literature, which reports lower risk-adjusted returns at firm-level for banks which supplement aggregate income using non-traditional business activities. Our method is further validated using an analysis of ICC determinants and a Vector Error Correction Model.