Rejoinder: Regulation and the Term of the Risk Free Rate: Implications of Corporate Debt

Abstract

Hall (2007) challenges a fundamental point in the analysis of Lally (2007) and earlier papers: if the risk free rate within the allowed rate of return matches the regulatory term, then the present value of future cash flows PV0 equals equityholders initial investment C(1−L). Hall argues that this result implicitly assumes that forward rates equal expected spot rates. If this were true, it would undercut Lally’s analysis because the empirical evidence does not support the alleged assumption.

Citation

Lally, M. (2007), "Rejoinder: Regulation and the Term of the Risk Free Rate: Implications of Corporate Debt", Accounting Research Journal, Vol. 20 No. 2, pp. 87-88. https://doi.org/10.1108/10309610780000693