TY - JOUR
T1 - Unlevered betas and the cost of equity capital
T2 - An empirical approach
AU - Sarmiento-Sabogal, Julio
AU - Sadeghi, Mehdi
PY - 2014/11/1
Y1 - 2014/11/1
N2 - The present paper calculates the systematic risk within the context of the capital asset pricing model to investigate the significance of financial leverage on systematic risk. Rather than testing the unlevered beta directly, we develop a multinomial model with theoretically predicted targets in the unleveraged/leveraged process. We find that including tax shields in this process is statistically more robust than omitting them. Our results also suggest that the use of the proxy levered beta to address the lack of market information for both non-traded firms and individual business units is not misleading.
AB - The present paper calculates the systematic risk within the context of the capital asset pricing model to investigate the significance of financial leverage on systematic risk. Rather than testing the unlevered beta directly, we develop a multinomial model with theoretically predicted targets in the unleveraged/leveraged process. We find that including tax shields in this process is statistically more robust than omitting them. Our results also suggest that the use of the proxy levered beta to address the lack of market information for both non-traded firms and individual business units is not misleading.
UR - http://www.scopus.com/inward/record.url?scp=84911362992&partnerID=8YFLogxK
U2 - 10.1016/j.najef.2014.08.002
DO - 10.1016/j.najef.2014.08.002
M3 - Article
AN - SCOPUS:84911362992
VL - 30
SP - 90
EP - 105
JO - The North American Journal of Economics and Finance: a journal of financial economics studies
JF - The North American Journal of Economics and Finance: a journal of financial economics studies
SN - 1062-9408
ER -