The application of proxy methods for estimating the cost of equity for unlisted companies: evidence from listed firms

Sarmiento, Julio; Sadeghi, Mehdi; Sandoval, Juan S.; Cayón, Edgardo

doi:10.1007/s11156-021-00968-3

Cited by 3 publications

(2 citation statements)

References 52 publications

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“…The results indicated a positive and significant relationship between the risk of cooperatives and accounting performance. Sarmiento et al (2021) affirmed that the accounting beta explains the variability of stock returns with some limitations, conducting a study composed of 61,618 observations related to companies listed on NYSE and NASDAQ between 1970 and 2016.…”

Section: Literature Reviewmentioning

confidence: 99%

“…To this end, several studies have demonstrated that accounting beta presents a relevant measure for calculating risk for unlisted companies (Almisher and Kish 2000;Sarmiento-Sabogal and Sadeghi 2015;Intrisano et al 2017;Rutkowska-Ziarko and Pyke 2017;Teixeira et al 2020;Sarmiento et al 2021;Roque and Caicedo Carrero 2021;Rutkowska-Ziarko 2022). However, other researchers interested in the same issue have concluded that accounting beta does not present a valuable measure of risk for firms (Vos 1992;St-Pierre and Bahri 2006).…”

Section: Introductionmentioning

confidence: 99%

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

Faiteh

Aasri

2022

Risks

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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.

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Section: Literature Reviewmentioning

confidence: 99%