Validating Downside Accounting Beta: Evidence from the Polish Construction Industry

Rutkowska-Ziarko, Anna; Pyke, Christopher

doi:10.1007/978-3-319-76228-9_8

Cited by 7 publications

(5 citation statements)

References 17 publications

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“…However, these correlations are not statistically significant. Previous research on the Warsaw Stock Exchange also provided evidence of a positive and statistically significant correlation between various types of market and accounting betas, as well as the relationship between total risk and ROA volatility [10,11]. The aforementioned research covered the food and construction sectors, as well as companies included in the WIG-20, WIG-40, and WIG-80 indices.…”

Section: Resultsmentioning

confidence: 98%

“…However, this can be related to the previous research by the same authors on the WSE and FSE. The impact of accounting measures of risk on market measures of risk was identified for Polish food, construction, and IT companies, as well as ones composing some of the WSE for large, medium, and small companies [9][10][11][12][13]. Similar research was conducted on the Frankfurt Stock Exchange.…”

Section: Discussionmentioning

confidence: 93%

“…The impact of accounting measures of risk on market measures of risk was found in previous studies on the Warsaw Stock Exchange. It was identified for Polish food, construction, and IT companies, as well as companies composing some of the WSE indices (WIG-20, WIG-40, and WIG-80) [9][10][11][12][13]. Similar research was conducted on the Frankfurt Stock Exchange.…”

Section: Introductionmentioning

confidence: 99%

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Accounting and Market Risk Measures of Polish Energy Companies

Rutkowska-Ziarko

Markowski

2022

Energies

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Companies in the energy sector, due to their important role in the economy and the specificity of energy sources, are exposed to many types of risk, ranging from the risk associated with the company’s operations and the global economic and political situation in the world. Energy companies are usually large capital companies whose shares are listed on the stock market. The mentioned risk factors may shape the risk level of these companies. The study aims to examine the relationship between market and accounting risk measures for Polish energy companies listed on the Warsaw Stock Exchange. This paper uses market and accounting betas in the conventional and downside approach. In addition to market measures of total risk, it also examines the variability of ROA for energy companies. The study of the relationship between market risk measures and accounting risk measures was based on Pearson’s correlation coefficient, standard linear regression, and quantile regression. The relationship between market and accounting measures of total and systematic risk was identified. Moreover, quantile regressions revealed that the slope for accounting variables varies across the quantiles. Our research shows that for energy companies not listed on the capital markets, for which no market risk measures can be derived, accounting betas and downside accounting can be useful tools in risk analysis. The contribution of the article to the risk analysis of energy companies is the use of unpopular accounting beta factors and a new modification of these coefficients for downside risk.

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Section: Resultsmentioning

confidence: 98%

Section: Discussionmentioning

confidence: 93%

Section: Introductionmentioning

confidence: 99%

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Accounting and Market Risk Measures of Polish Energy Companies

Rutkowska-Ziarko

Markowski

2022

Energies

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“…R-square is the highest for mean ROE, it equals 23% for individual securities and 59% for the portfolio. In prior studies, a positive correlation between the profitability ratios and the quarterly average rates of return was observed for Polish food and con-Pobrane z czasopisma Annales H -Oeconomia http://oeconomia.annales.umcs.pl Data: 03/11/2020 06:44:36 U M C S struction companies (Rutkowska-Ziarko, 2015;Rutkowska-Ziarko & Pyke, 2018). Konchitichi, Luo, Ma, and Wu (2016) found a negative risk premium for ROA and positive risk premium for .…”

Section: 416mentioning

confidence: 93%

Market and Accounting Risk Factors of Asset Pricing in the Classical and Downside Approaches

Rutkowska-Ziarko

Markowski

2020

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Theoretical background: The variability of the company’s profitability is the result of the accompanying risk. To compare the profitability of many companies, relative profitability measures, which include profitability ratios, are more convenient. This article analyses market and accounting risk factors of CAPM. Risk was considered in variance and downside framework. Market betas, accounting betas were used in an extended version of the asset pricing model. Additionally, the influence of profitability ratios, such as ROA and ROE on the average rate of return on the capital market are considered.Purpose of the article: The main purpose of this study is to test the standard and extended CAPM relations between systematic risk measures and mean returns for single companies quoted on the Polish capital market and equally-weighted portfolios in two approaches: variance and downside risk.Research methods: The research based on individual securities and portfolios, compares the one-factor risk-return relationships with two-factor ones estimated using mean returns in cross-sectional regressions. The regressors were expressed in absolute terms and classical and downside beta coefficients. The sample includes companies differing in terms of size and across different industries.Main findings: Portfolios with higher classical or downside market betas generate higher mean returns. The negative risk premium for accounting betas for variance and downside risk was identified. It is not in accordance with our earlier study of the Polish construction sector, where a positive and significant risk premium for downside accounting betas was found. The highest explanatory power of rates on returns on the Polish capital market were found for average ROA and ROE. This confirms the results of the previous studies on the Polish capital market for food and construction sectors.

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“…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%

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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Validating Downside Accounting Beta: Evidence from the Polish Construction Industry

Cited by 7 publications

References 17 publications

Accounting and Market Risk Measures of Polish Energy Companies

Accounting and Market Risk Measures of Polish Energy Companies

Market and Accounting Risk Factors of Asset Pricing in the Classical and Downside Approaches

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

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