Assessing Systematic Risk through Accounting Information: Evidence from the Colombo Stock Exchange

Abstract

This study tests whether accounting information significantly influences systematic risk. To operationalization the relationship between the accounting information and systematic risk, a panel data analysis is conducted on stock analysis with a portfolio of higher beta stocks, moderate beta stocks, and lower beta stocks as well as overall stocks among the selected 154 listed companies in the Colombo Stock Exchange (CSE). Within this application, the present study seeks to present empirical evidence on the relationship between accounting information and systematic risk in the Colombo Stock Market. The study found that the accounting variables significantly influence systematic risk. While accruals were not significant in influencing systematic risk, moreover, the study suggests accounting variables are well explained in the systematic risk and recommends using accounting-based risk factors other than market-based risk factor models in the Sri Lankan context.