Since the beginning of the financial crisis in 2008, executives and valuation practitioners alike have observed major changes in the underlying parameters that drive, and are used to derive, the value of companies. One of these key parameters is the equity market risk premium used to estimate the equity financing cost for discounted cash flow analysis.
This research bulletin prepared by the Dutch Valuations practice summarises our observations regarding the key factors influencing the equity market risk premium since the onset of the financial crisis. We also present an overview of our analysis and conclusions regarding an appropriate equity market risk premium to be applied as per September 30, 2024.
