Survey Report
Higher for Longer?
Cost of Capital in theCurrent Environment
November 2023

Summary
On September 28, 2023, Kroll Managing Director
Carla S. Nunes, CFA, and Director Jim Harrington
discussed current and projected global economic
conditions, financial market performance, as wellas trends in risk-free rates, equity risk premium,cost of debt, and country risk premium
assumptions before a live audience of706 participants.*
Throughout the webinar, they polled theattendees on valuation and cost of capital-related
topics, including the interaction between ESG
factors and valuation.
In the following slides, you will find the results ofthese polling questions.
*Out of 706 live attendees, 15% were Kroll employees and 85% were external/thirdparty participantsHigher for Longer? Cost of Capital in the Current Environment1

In which country/region are your valuations
primarily focused?

2

Do you believe an economic recession isimminent in the country you are located?

3

Which methods/data sources do you use as
the equity (market) risk premium (ERP)
input in your cost of equity estimates?
[Select ALL that apply]

4

Do you typically incorporate environmental,social and governance (ESG) adjustments inyour valuation analyses? [Select ALL thatapply]

5

Do you typically incorporate country riskadjustments in your valuation analyses?

2

QUESTION 1

In which country/region are your valuations primarily focused?
78.4% of survey participants conducted valuations primarily based in North America.
North America

Europe, Middle East& Africa (EMEA)

78.4%

Latin America& Caribbean

16.7%

Asia Pacific
2.5%

1.7%

Note: 0.8% - Other/Not Applicable

Higher for Longer? Cost of Capital in the Current Environment

3

QUESTION 2

Do you believe an economic recession is imminent in the country
you are located?
43.3% of survey participants anticipate a recession
will occur in 2024 in their home country.

43.3%

28.3%

14.1%

12.8%
1.4%

Yes, I anticipate arecession will takeplace in 2024.

I do not expect arecession will occur
in 2023/2024.

Yes, I believe we are
already in recession.

Yes, I anticipate a Other/Not Applicable
recession will takeplace in late 2023.

Note: Responses may not add to 100% due to rounding

Higher for Longer? Cost of Capital in the Current Environment4

*This was a multiple-choice question with respondents having the ability to select multiple answers.

QUESTION 3

Which methods/data sources do you use as the equity (market) risk
premium input in your cost of equity estimates?
Almost 60% of survey participants rely on the Kroll-Recommended U.S. ERP. More than a third of participants also use a LongTerm Historical Average as a basis to estimate ERPs, while approximately 22% utilize the Supply-Side ERP, both published byKroll. Almost a quarter of the audience also takes into consideration Professor Aswath Damodaran’s Implied ERP.*
Prof. Pablo Fernandez’
Survey of ERPs

4.1%

Other/Not
Applicable

13.5%

Supply-Side ERP,
published by Kroll

22.0%

Long-Term Historical
Average, publishedby Kroll

35.7%

Kroll U.S.
Recommended ERP

58.5%

BVR Cost of Capital
Professional

9.0%

Other Historical or
Implied ERP sources(e.g., Market-RiskPremia.com)?

Higher for Longer? Cost of Capital in the Current Environment

14.7%

Prof. Damodaran’sImplied ERP

23.7%

5QUESTION 4*This was a multiple-choice question with respondents having the ability to select multiple answers.

Do you typically incorporate ESG adjustments in yourvaluation analyses?
38% of survey participants are planning to start

38.0%

considering ESG factors in their valuations

26.0%

12.1%

12.9%

I typically incorporate ESG
risks and opportunities
directly in projected cash
flows, when appropriate.

I typically adjust my costof capital estimates(discount rates) for ESG
risks, when appropriate.

11.0%

I do not currently incorporate
ESG factors in valuations, butplan on considering ESGfactors in my valuations.

Higher for Longer? Cost of Capital in the Current Environment

I do not believe global
investors demand anincremental premium or
discount for ESG factors.

Other/Not
Applicable6

QUESTION 5

Do you typically incorporate country risk adjustments in yourvaluation analyses?
3.8%
More than halfof the respondents
incorporate country risk
adjustments directly intheir discount rateestimates.

I do not believe global investors demand
an incremental premium for country risk.

24.5%

I do not perform valuations in countries
where country risk is an issue.

8.8%

I typically incorporate country risk directlyin projected cash flows, when appropriate.

50.8%

I typically adjust my cost of capital
estimates (discount rates) for country risk,
when appropriate.

12.1%

Other/Not Applicable

Higher for Longer? Cost of Capital in the Current Environment7

For more information, please contact:
Discover more from our Valuation Digital Solutions Team:https://www.kroll.com/en/insights/publications/cost-of-capital

Carla S. Nunes, CFAManaging Director
Kroll, LLC
carla.nunes@kroll.com

Kevin Madden

Director
Kroll, LLC
kevin.madden@kroll.com

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