Revising the relevance of Accounting Betas in estimating the cost of equity capital: a panel approach

Julio Sarmiento-Sabogal

Research output: Contribution to journalMeeting abstract

Abstract

This paper is an attempt to re-examine the relationship between six alternative definitions of Accounting Beta and Market Beta using a panel data approach. Consistent with the previous studies, our estimated coefficients for Accounting Betas are statistically significant at the conventional levels. We get further evidence that, i) All calculated Accounting Betas overestimate the Market Beta in a range between 8.8% and 23.3% (P <0.05), ii) The coefficient estimated based on EBIT to Total Assets ratio is the most closely related to Market Beta with 17% overestimation probability and, iii) The measures based on Total Assets are more correlated with Market Beta, compared to those computed from Common Equity. These findings have important implications for determining the cost of capital in the private equity market.
Original languageEnglish
Pages (from-to)75
Number of pages1
JournalExpo 2012 Higher Degree Research : book of abstracts
Publication statusPublished - 2012
EventHigher Degree Research Expo (8th : 2012) - Sydney
Duration: 12 Nov 201213 Nov 2012

Keywords

  • CAPM
  • Cost of capital
  • Accounting Betas

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