Skip to main content

Research Repository

Advanced Search

Does relative (absolute) efficiency affect capital costs?

Mali, Dafydd; Lim, Hyoung-Joo


Assistant Professor in Accounting

Hyoung-Joo Lim


In this paper, we examine the effect of relative/absolute firm efficiency on weighted average cost of capital (WACC). Using a sample of Korean listed firms, we find that WACC is negatively associated with relative firm efficiency (operational performance) suggesting that firms with higher (lower) relatively efficiency are expected to pay lower (higher) capital costs. When we repeat our analysis using absolute firm efficiency (ROA), we do not find a statistically significant relationship. Our results suggest relative efficiency which is estimated as output (sales) divided by the resources that are directly under the control of management is assessed by capital providers and impounded into a firm’s capital costs. Absolute efficiency (ROA) which is estimated as sales divided by total assets is not. Our results suggest that simple accounting ratios used in the accounting literature are not considered as informative to explain borrowing costs compared to relative efficiency that captures managerial operational performance.


Mali, D., & Lim, H. (2022). Does relative (absolute) efficiency affect capital costs?. Annals of Operations Research, 315(2), 1037-1060.

Journal Article Type Article
Acceptance Date Jun 10, 2021
Online Publication Date Jul 10, 2021
Publication Date 2022-08
Deposit Date Nov 1, 2022
Publicly Available Date Nov 1, 2022
Journal Annals of Operations Research
Print ISSN 0254-5330
Electronic ISSN 1572-9338
Publisher Springer Verlag
Peer Reviewed Peer Reviewed
Volume 315
Issue 2
Pages 1037-1060
Keywords Business Analytics and Operations Research, Firm efficiency, DEA, Cost of capital, WACC, Risk, A1, G1, G3, M1, M4
Public URL
Publisher URL


Does relative (absolute) efficiency affect capital costs? (959 Kb)

Publisher Licence URL

Copyright Statement
Open AccessThis article is licensed under a Creative Commons Attribution 4.0 International License, which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons licence, and indicate if changes were made. The images or other third party material in this article are included in the article's Creative Commons licence, unless indicated otherwise in a credit line to the material. If material is not included in the article's Creative Commons licence and your intended use is not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder. To view a copy of this licence, visit

You might also like

Downloadable Citations