No abstract

The problem of determining the cost of equity is crucial to the development of organizations. It is an essential means of calculating value creation. The financial literature has proposed several models for estimating the cost of equity, such as the capital asset pricing model (CAPM). However, this model is only used for listed companies, and cannot be used for unlisted companies. To remedy this situation, alternative measures of the cost of equity have emerged, such as accounting beta. The main objective of this research was to explore the relationship between market beta and accounting beta calculated using ROA, ROE and net income to demonstrate the ability of accounting beta to measure risk for unlisted companies. To carry out this study, we exploited data from a sample of 49 companies listed on the Casablanca Stock Exchange during the period of 2015–2019. We used panel data econometrics to empirically test the research hypotheses. The results show that the accounting beta calculated using ROA and ROE significantly represents the market beta and is a satisfactory solution to calculate the cost of equity of unlisted firms. The results of the study contribute to the existing literature on the cost of capital by reinforcing the role of accounting beta as a solution for determining the cost of equity and therefore the creation of value for the organization.

Value creation has become a very important concept in finance. To this end, value creation metrics, like market value added and economic value added have raised the question of their superiority and ability to reflect the true value of organizations, as opposed to the classic accounting indicators like ROE, ROA and EPS. Nevertheless, EVA can only be calculated for listed companies, which makes it difficult to use this indicator to measure value creation for non-listed companies. In this way, some alternatives have been used such as the accounting beta to calculate the return on equity and subsequently the determination of the EVA. Within this framework, the central point of this research is to empirically verify the idea that the normal EVA and EVA calculated using accounting beta are the better measure than traditional indicators to explain MVA. A panel of 32 companies traded on the Casablanca Stock Exchange over the period 2015–2019 was selected for this study. The regression method on panel data was used. The results show that normal EVA is a superior metric than the classical indicators to explain MVA. In addition, the EVA calculated from the accounting beta could be used as a measure adapted to the case of unlisted companies to measure value creation.