Weighted Average Cost of Capital in Declining Interest Rate Environments (part II): A Qualitative Expert Research

This study constitutes the second part of a comprehensive investigation of the persistence of weighted average cost of capital (WACC) rates despite declining risk-free interest rates. While theory suggests that WACC should reflect lower risk-free interest rates and decline as well with falling government bond yields, empirical evidence reveals minimal adjustment in reported WACC figures. Disclosed WACC of DAX40 companies remain between 7% and 8% as yield of a ten-year German government bond fell from 4.1% to –0.2%. After the quantitative risk analysis (part I) systematically lacks market-based and fundamental explanations – demonstrating that neither systematic risk, overall market risk, earnings risk nor leverage increased sufficiently to justify this stability – this article addresses the resulting explanatory gap through qualitative inquiry. Employing grounded theory methodology, we investigate causes and consequences of persistent WACC through systematic analysis of 18 problem-centered semi-structured expert interviews (22 respondents comprising corporate finance executives, investment bankers, strategy consultants, auditors). The investigation reveals that behavioral economics (risk aversion, opportunism, subjectivity), organizational constraints (strategic path dependency, implementation complexity, financial criterion rigidity), and model-theoretic discretion (parameter averaging, analyst influence, supplementary risk adjustments) substantially shape practical WACC determination – factors that quantitative risk analysis cannot capture. Practitioners employ disclosed WACC strategically to reconcile investor return requirements with long-term operational stability, avoid audit friction, and hedge geopolitical-monetary risks – consequences that generate capital opportunity costs offsetting traditional value-maximization objectives. Combined quantitative and qualitative evidence yields actionable insights for value-based capital cost methodologies aligned with organizational and market realities.