Systematic Risk and Accounting Determinants: An Empirical Assessment in the Indian Stock Market

Abstract

This study explores the contemporaneous association between market determined risk measures and accounting determined risk measures using the large liquid non-financial stocks in the Indian stock market in the recent 2012-2017 period. Two measures of systematic risk and seven accounting determined risk measures are chosen based on prior research. This study uses three regression techniques, namely Ordinary Least Squares (OLS), stepwise regression and robust regression, to identify the influential accounting variables for the systematic risk measured by market beta. The results evidence that there is a high degree of contemporaneous association between market determined and accounting determined risk measures, with nearly 30% of the cross sectional variance in systematic risk explained by accounting determined risk measures. The results suggest that the accounting variables can be used in the predictive models of future risk, leading to superior decision making at the level of individual decision maker.

Debt Policy, Efficiency Ratio, Profitability, and Systematic Risk: Evidence From Indonesia

“…As noticed in the earlier investigations utilizing the Indonesian capital market data, this evidence is verified by Tigor et al (2021). Correspondingly, the ability of the firms to cut systematic risk by elevating profitability is affirmed by the researchers employing the stock market data from Malaysia (Jaafar et al, 2020), India (Arora et al, 2019;Parthasarathy, 2019;Saji, 2018), and Vietnam (Ha, 2020) Practically, for public investors with risk-averse preferences interested in share transactions becoming the Kompas 100 index based on the systematic risk, this research recommends considering the movement of efficiency and profitability ratios yearly to obtain the stocks with smaller beta. Furthermore, to realize this circumstance, they can buy the shares of the companies when the position of the total asset turnover and profitability elevate from prior years.…”

“…In their study, Arora et al (2019) demonstrate a negative association based on a pooling data regression model and an insignificant relationship based on a fixed effect regression model. Moreover, Saji (2018), Parthasarathy (2019), Ha (2020), Jaafar et al (2020), andTigor et al (2021) display a negative effect.…”

“…With the polling data regression model, Arora et al (2019) exhibit that financial leverage is positively associated with this systematic risk but meaningless evidence when the fixed effect model is employed. Besides, Parthasarathy (2019), Riaz et al (2019), andHa (2020) demonstrate no association between liability policy and this risk.…”

“…The studies attempting to connect debt ratio as the proxy of the liabilities policy with the systematic risk are conducted by researchers employing capital market data from several countries, like the United States (Rowe & Kim, 2010;Saravia et al, 2021); India (Arora et al, 2019;Parthasarathy, 2019;Saji, 2018), Qatar, Dubai, Abu Dhabi, and Kuwait (Mousa et al, 2021); United States, Germany, South Korea, and Egypt (Wagdi & Tarek, 2019), and Japan (Riaz et al, 2019). Unfortunately, the relationship is still mixed.…”

“…Equally, the connection between profitability and systematic risk is uncertain based on the scholars using the capital market data from the United States (Rowe & Kim, 2010), Malaysia (Jaafar et al, 2020) India (Arora et al, 2019;Parthasarathy, 2019;Saji, 2018), Indonesia (Tigor et al, 2021), Japan (Riaz et al, 2019), and Vietnam (Ha, 2020). Nevertheless, contradictory results exist.…”