Corporate Networks and Cost of Capital: A Study of Indonesia

Introduction

  1. More network connections correlate with a lower weighted average cost of capital.
  2. Higher importance in a network correlates with a lower cost of equity capital.
  3. Lower network quality (based on red flags) and higher density correlates to higher costs of capital.
  4. Nearly all of impacts described above are driven by the cost of equity component of WACC.

The Dataset

Chart 1: Company Count and Average WACC by Industry

Network Scale

Chart 2: WACC vs. Log Degree Centrality

Network Density

Chart 3: WACC vs. Log Clustering Coefficient

Network Structure, the Cost of Capital and Valuation

Table 1: Illustrative Valuation Impact based on Network Structure Features

Network Quality

Chart 4: Percentage of Blacklist & PEP Nodes in 1st Degree (where greater than 0)

All About the Equity

Conclusions

Supplement: Statistical Tables

Investor & Advisor in Asia for 20 Years / Private Equity Technologist

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Wesley Barnes

Wesley Barnes

Investor & Advisor in Asia for 20 Years / Private Equity Technologist

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