Accounting Beta as an Indicator of Risk Measurement: The Case of the Casablanca Stock Exchange

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.

Comparative Analysis of Development Strategies of Real Estate Companies in Different Fields

“…Beta is the best measure of risk among various risk measures in asset pricing models [7]. The higher the beta of asset, the higher the risk.…”

Business Valuation Using Discounted Cash Flow Method in Restaurant Industry (Case Study: Coffee Shop XYZ)

“…So that the Discount Factor value is 0.50. This value is then entered into formula (10) After that, you can find the company's valuation value or Enterprise Value/EV by adding up the PV Terminal Value with the discounted Unlevered Free Cash Flow (Present Value Unlevered Free Cash Flow) using formulas (12) and (13). Where t on the Discount Factor is the calculated year period.…”

Untitled

“…De forma similar, Támara et al (2017) aseveraron la utilidad de los Betas contables para las empresas que no tienen data histórica en el precio de su acción o que tienen mucho ruido. En este contexto, la medida contable de riesgo total y sistemático tiene un impacto significativo sobre las medidas de riesgo de mercado para empresas y el modelo de Beta contable se presenta como una alternativa poderosa al CAPM (Rutkowska y Markowski, 2022;Faiteh y Aasri, 2022).…”