Description:
Using a large dataset of manufacturing firms from 65 countries, we examine whether and how firm inflexibility influences implied cost of equity over the period 1989–2018. We find that, on average, firms with higher levels of inflexibility have a higher implied cost of equity. These results are consistent with the view that investors perceive firms with higher levels of inflexibility as risky firms. Our findings are robust to alternative proxies for firm inflexibility and cost of equity capital. We also show that association between firm inflexibility and implied cost of equity is more pronounced for small firms