Article dans une série de papiers de travail :
, Augustin Landier
et David Thesmar
, « The WACC Fallacy: The Real Effects of Using a Unique Discount Rate »
, TSE Working Paper
, n°11-222, février 2011.
We document investment distortions induced by the use of a single
discount rate within firms. According to textbook capital budgeting,
firms should value any project using a discount rate determined by the
risk characteristics of the project. If they use a unique company-wide
discount rate, they overinvest (resp. underinvest) in divisions with a
market beta higher (resp. lower) than the firm's core industry beta.
We directly test this consequence of the WACC fallacy and establish
a robust and significant positive relationship between division-level investment and the spread between the division's market beta and the
firm's core industry beta. Consistently with bounded rationality theories,this bias is stronger when the measured cost of taking the wrong discount rate is low, for instance, when the division is small. Finally, we measure the value loss due to the WACC fallacy in the context of acquisitions. Bidder abnormal returns are higher in diversifying mergers and acquisitions in which the bidder's beta exceeds that of the target. On average, the present value loss is about 0.7% of the bidder's market equity.
Investment, Behavioral finance, Cost of capital
G11 : Portfolio Choice
G31 : Capital Budgeting; Investment Policy
G34 : Mergers; Acquisitions; Restructuring; Corporate Governance