Cost of capital for international operations--an integrated versus segmented market approach
Understanding the appropriate cost of capital for international investment projects is one of the most important and least discussed issues in international corporate finance. What makes discussions on this topic difficult, however, is the gap between common practice and lessons learned from recent research. This article examines the lessons learned from a study of capital costs for international investment projects and the relationship of these costs to project location. In doing so, it describes the intersection between the demand for--and the supply of--capital in relation to the cost of capital, showing supply as the crucial variable determining project-selection decisions, supply that is based on the relationship of a country or firm to the world's major markets. It also discusses a framework for assessing the impact of capital projects from both internal and external perspectives. It then explains the difference between the academic and practitioner views of markets.