The ultimate end of each company is to increase market value of stockholders ‘ equity. Systematic hazard dramas important function in this respect. Therefore, it is pressing for the fiscal directors of a company to understand the factors that may act upon systematic hazard. It will enable them to command it and avoid the possible dislocations in stockholders ‘ value. Sing the significance of systematic hazard in fiscal direction, the end of the current paper is to happen the factors that can find systematic hazard. To accomplish the end of the paper foremost, 457 non-financial companies have been selected from Tehran Stock Exchange. Second the fiscal determiners have been selected and measured. Third, the corresponding hypothesis has been developed. Finally, they have been tested by agencies of common affect theoretical account. The findings proved to be instead converting.
Systematic hazard is one of the most of import factors deserving to be considered when in investing and fiscal determinations. It is critical because it indicates the hazard of the company in relation to the market hazard and if it is higher than the market hazard it affects stockholders ‘ value as hazard alterations instantly are reflected in stock monetary values in efficient markets. Hazard can diminish or increase stock monetary values therefore increasing or diminishing the value of the stockholders. Therefore, to understand the determiners of systematic hazard is critical for companies ‘ fiscal directors to be able to increase stockholders value and to pull investors by commanding systematic hazard of the house. Following this, the end of the current survey is to research the fiscal determiners of systematic hazard. To accomplish the end 457 non-financial companies have been selected from the Tehran Stock Exchange. Based on the collected fiscal information the dependant and independent variables have been determined. Then, the hypotheses have been formulated and tested by the corresponding statistical tools. The consequences indicate that there are four variables that can find systematic hazard.
Harmonizing to the Sharp ( 1963 ) there are two types of hazards associated with all companies: systematic and unsystematic. Systematic hazard affects a big figure of assets and because systematic hazards have market-wide effects, they are sometimes called market hazards. An unsystematic hazard is one that affects a individual plus or a little group of assets. Since this hazard is alone to single companies or assets, it is besides called unique or asset-specific hazards. Systematic hazard steps sum of hazard nowadays in a peculiar hazardous plus relation to that in an mean hazardous plus. Unlike unsystematic hazard that can be removed or decreased with the aid of variegation, systematic hazard is non-diversifiable. The expected return on an plus depends merely on that plus ‘s systematic hazard. The theoretical account that describes the relationship between systematic hazard and expected return is CAPM ( Capital plus pricing theoretical account ) . Mathematical representation of CAPM is as follows:
E ( Ri ) = Rfr + ?i ( E ( Rm ) – Rfr )
The CAPM indicates that the expected return for a peculiar plus depends on three things:
The pure clip value of money, as measured by the hazard free rate ( Rfr ) , this is the wages for waiting for return without bearing any hazard.
The wages for bearing systematic hazard, as measured by the market hazard premium ( E ( Rm ) – Rfr ) , this is the wages that the market offers for bearing mean sum of systematic hazard in add-on to waiting.
The sum of systematic hazard, as measured by ?i which is the sum nowadays in a peculiar plus relation to an mean market plus [ 13 ] .
Beta is measured harmonizing to the relationship between the market return and expected return on a security [ 7 ] and mathematically it can be presented as follows:
E ( Ri ) = ?0 + ?i Rm + ei
E ( Ri ) indicates expected return of a company that is expressed as a additive map of market return Rm and mistakes ei. Based on this expression beta can be derived in the undermentioned manner:
?i = Cov ( E ( Ri ) , Rm ) / Var ( Rm )
The expression indicates direct relationship between hazard, expected return and market return. Hence, systematic hazard is the cardinal factor for the investors to find the expected return. The higher is the systematic hazard, the higher is the expected return on the investing. Therefore, the ability to command systematic hazard is really of import non merely for current stockholders but besides for pulling possible stockholders. The fact that systematic hazard is indispensable for doing fiscal determinations has been proved by many researches. There has been great figure of researches that have aimed to place the determiners of systematic hazard. Most of them have focused on fiscal determiners of systematic hazard [ 6, 7 ] .
Some research workers have indicated that there is a negative relationship between profitableness and systematic hazard in some industries and positive in others [ 6 ] .
Borde et Al. ( 1994 ) have found out positive relationship between profitableness and systematic hazard in insurance companies [ 1 ] . The implicit in thought is that in fiscal establishments more net income leads towards greater hazard.
Harmonizing to Logue and Merville ( 1972 ) profitableness, debt ratio and company size drama important function in finding systematic hazard [ 8 ] .
Damodaram ( 2009 ) suggests that the grade of fiscal purchase, runing purchase and company size are among the key factors which affect the beta values of companies [ 2 ] .
Jensen ( 1984 ) has estimated a positive relationship between systematic hazard and liquidness [ 5 ] . However, most surveies have found out a negative relationship between systematic hazard and liquidness [ 4, 6, 7, 8, and 11 ] . The statement here is that systematic hazard lessenings when liquidness of a house increases.
Then, harmonizing to Milicher ( 1974 ) there is a positive nonlinear relationship between purchase and systematic hazard.
Olib et al. , ( 2008 ) have used purchase in their survey as independent variable and found positive relationship between purchase and systematic hazard [ 12 ] . The implicit in thought is that big houses should hold lower systematic hazard due to economic systems of graduated table.
Slliven ( 1978 ) argues that there is a low systematic hazard in big companies because the big houses are able to command the impact of economic alterations more expeditiously.
Harmonizing to Titman & A ; Wessels ( 1998 ) big endeavors have more chances for variegation and due to which they decrease systematic hazard [ 14 ] .
Further, research workers besides show that operating efficiency has negative impact on hazard [ 4, 6 ] .
Some research workers have applied clip series informations to gauge future beta values based on past periods, i.e. clip has been identified as a deciding [ 9, 10 ] .
There have been researches concentrating on the impact of macroeconomic factors on systematic hazard. Patro et Al ( 2000 ) have found out that several variables including rising prices, imports, exports significantly affect systematic hazard [ 3 ] .
The sample of the current survey includes 457 listed companies in Tehran Stock Exchange ( hypertext transfer protocol: //www.tse.ir/ ) . The information covers 2001-2011. The statistical bundle used is SPSS 16 and statistical tools used are Common Effect Model and descriptive statistics. To understand which of the selected determiners are of import for cut downing systematic hazard the undermentioned hypotheses have been put frontward and tested:
H1: Liquid is negatively related to systematic hazard.
H2: Leverage is positively related to systematic hazard.
H3: Operating efficiency is negatively related to systematic hazard.
H4: Profitableness is positively related to systematic hazard.
H5: Firm size is negatively related with systematic hazard.
Panel informations applied in the current research has combined the clip series and transverse sectional informations. To prove the hypotheses the undermentioned Common Effect Model has been used:
I?it = I±0 + I± LQit + I± LVit + I± OEit + I± PFit + I± FSit
Dependent variable, systematic hazard for each house has been estimated by additive arrested development theoretical account for 10 old ages in the undermentioned manner:
Rc = I?0 + I?1 Rm I?1= Rc- I?0/ Rm
Where Rc is monthly mean returns of company ; Rm is monthly mean returns of market ; coefficient I?1 is estimated systematic hazard on annual bases.
The choice of the determiners for the current survey is based on the fact that they can assist directors to measure systematic hazard and command it by agencies of house specific factors. Independent variables are described in the tabular array below.
Table 1- Independent Variables
Liquidity ( LQ )
Quick Ratio = Current plus – Inventory / Current liability
Leverage ( LV )
Debt ratio = Total Debt / Total Assetss
Operating Efficiency ( OE )
Asset Turnover = Total gross / Total Asset
Profitability ( PF )
Tax return on Assetss = Net income / Total Assetss
Firm Size ( FS )
LOG ( Total Asset )
Data Analysis and Results
Table 2 demonstrates the descriptive statistics of systematic hazard ( beta ) and five independent variables for 457 listed companies for 10 twelvemonth period of 2001- 2011. Mean value of beta is 0.825. This means that the systematic hazard on norm of the selected companies is less than market hazard that is ever equal to 1, which implies that the listed companies are less hazardous than market. Liquidity has mean mark of 1.072 with venereal disease. divergence of A±0.856 which indicates the listed companies on norm have adequate hard currency and receivables to cover their current liabilities. Leverage has mean of 0.721 with divergence of A±0.374 bespeaking that on mean 72.1 % of the assets are financed by debt. Operating efficiency indicates that the mean return on capital invested in the entire assets is 16.3 % from gross revenues gross. Finally, profitableness steps indicate that mean rate of return on investing is 8.1 % .
Table 2-Descriptive Statisticss
Table 3 indicates the relationship between the selected fiscal variables and systematic hazard. Common Effect Model is important at the degree of 5 per centum with all variables important with the exclusion of size. As the consequences indicate, size does non hold important impact on hazard. Harmonizing to first hypothesis of the survey, liquidness is negatively related to beta. The consequences support the hypothesis bespeaking that one unit addition of liquidness will diminish systematic hazard by 0.4581 units and frailty versa. Second hypothesis provinces that there is a positive relationship between purchase and hazard. The consequences support the 2nd hypothesis every bit good indicating out that with 95 % assurance purchase increases systematic hazard. As to 3rd hypothesis, it is besides supported by the consequences, i.e. addition of runing efficiency will diminish hazard and frailty versa. Finally, the 4th hypothesis besides is accepted, reasoning that the higher is the profitableness, the higher is the hazard. The R-square coefficient is non really high which indicates that there are other factors apart from the five factors studied here that can act upon systematic hazard. Still, it shows that 58 % of the variableness in systematic hazard is explained by the variableness of the four important fiscal factors.
Table 3-Results of the Common Effect Model
Intercept ( changeless )
Adjusted R Square
*Significant at the degree of 5 % .
The findings of the current research support old researches. Financial variables do play important function in finding systematic hazard. The chief end of a company is to increase stockholders ‘ value. To understand the factors related to systematic hazard is really utile for investors and company directors. Though the higher hazard promises higher returns, it besides promises high losingss. To avoid such losingss directors should see these factors non to set the stockholders ‘ value at high hazard. Investors should see them to be able to measure the hazard of investing harmonizing to the grade of their hazard tolerance. Current survey has analyzed the relationship between systematic hazard and fiscal variables. Four fiscal variables are found to be the determiners of systematic hazard. This survey is really utile for investors and directors for doing fiscal determinations.
The restriction of the current research is possibly the fact that the survey included merely non-financial companies. Another restriction is connected with the figure of determiners. There can be other factors which may impact systematic hazard and future researches can seek to happen them.