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Hamada Equation

Definition

In corporate finance, Hamada's equation, named after Robert Hamada, is used to separate the financial risk of a levered firm from its business risk. The equation combines the Modigliani-Miller theorem with the capital asset pricing model. It is used to help determine the levered beta and, through this, the optimal capital structure of firms.

What is the 'Hamada Equation'

The Hamada equation is a fundamental analysis method of analyzing a firm's costs of capital as it uses additional financial leverage, and how that relates to the overall riskiness of the firm. The measure is used to summarize the effects this type of leverage has on a firm's cost of capital (over and above the cost of capital as if the firm had no debt). The equation is:

Explaining 'Hamada Equation'


Further Reading


The Hamada Equation reconsidered
papers.ssrn.com [PDF]
… 1 Date: Presented at the American Finance Association annual meeting 1993, Revised March, 2014 … Page 4. THE HAMADA EQUATION RECONSIDERED, JAMAL MUNSHI, 2014 4 … We present a comparison of the two equations using numerical methods …

Portfolio analysis, market equilibrium and corporation financePortfolio analysis, market equilibrium and corporation finance
www.jstor.org [PDF]
… 1 Date: Presented at the American Finance Association annual meeting 1993, Revised March, 2014 … Page 4. THE HAMADA EQUATION RECONSIDERED, JAMAL MUNSHI, 2014 4 … We present a comparison of the two equations using numerical methods …

The theoretical relationship between systematic risk and financial (accounting) variablesThe theoretical relationship between systematic risk and financial (accounting) variables
www.jstor.org [PDF]
… 1 Date: Presented at the American Finance Association annual meeting 1993, Revised March, 2014 … Page 4. THE HAMADA EQUATION RECONSIDERED, JAMAL MUNSHI, 2014 4 … We present a comparison of the two equations using numerical methods …

Market equilibrium and corporation finance: Some issuesMarket equilibrium and corporation finance: Some issues
www.jstor.org [PDF]
… 1 Date: Presented at the American Finance Association annual meeting 1993, Revised March, 2014 … Page 4. THE HAMADA EQUATION RECONSIDERED, JAMAL MUNSHI, 2014 4 … We present a comparison of the two equations using numerical methods …

The effect of the firm's capital structure on the systematic risk of common stocksThe effect of the firm's capital structure on the systematic risk of common stocks
www.jstor.org [PDF]
… 1 Date: Presented at the American Finance Association annual meeting 1993, Revised March, 2014 … Page 4. THE HAMADA EQUATION RECONSIDERED, JAMAL MUNSHI, 2014 4 … We present a comparison of the two equations using numerical methods …

Contingent claim pricing using probability distortion operators: methods from insurance risk pricing and their relationship to financial theoryContingent claim pricing using probability distortion operators: methods from insurance risk pricing and their relationship to financial theory
www.tandfonline.com [PDF]
… 1 Date: Presented at the American Finance Association annual meeting 1993, Revised March, 2014 … Page 4. THE HAMADA EQUATION RECONSIDERED, JAMAL MUNSHI, 2014 4 … We present a comparison of the two equations using numerical methods …

Hamada's equation, the Sarbanes‐Oxley Act of 2002 and the UK Companies Act of 2006Hamada's equation, the Sarbanes‐Oxley Act of 2002 and the UK Companies Act of 2006
www.emerald.com [PDF]
… 1 Date: Presented at the American Finance Association annual meeting 1993, Revised March, 2014 … Page 4. THE HAMADA EQUATION RECONSIDERED, JAMAL MUNSHI, 2014 4 … We present a comparison of the two equations using numerical methods …

Capital Flight, North‐South Lending, and Stages of Economic DevelopmentCapital Flight, North‐South Lending, and Stages of Economic Development
onlinelibrary.wiley.com [PDF]
… 1 Date: Presented at the American Finance Association annual meeting 1993, Revised March, 2014 … Page 4. THE HAMADA EQUATION RECONSIDERED, JAMAL MUNSHI, 2014 4 … We present a comparison of the two equations using numerical methods …

The brain drain, international integration of markets for professionals and unemployment: a theoretical analysisThe brain drain, international integration of markets for professionals and unemployment: a theoretical analysis
www.sciencedirect.com [PDF]
… 1 Date: Presented at the American Finance Association annual meeting 1993, Revised March, 2014 … Page 4. THE HAMADA EQUATION RECONSIDERED, JAMAL MUNSHI, 2014 4 … We present a comparison of the two equations using numerical methods …


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