Determinants Of Systematic Risk Research Articles

Applicability of Identified Financial Determinants of Undiversifiable Risk to Emerging Markets: A Multi-Sector Analysis of Non-Financial Listed Companies on the Ghana Stock Exchange

Aim: This study explores the influence of financial variables on undiversifiable risk in emerging markets.
 Methodology: Eight financial variables are examined as determinants of systematic risk. Five years financial data, 2016-2020, of 14 multi-sector non-financial firms listed on Ghana Stock Exchange was used. A descriptive, regression analysis and multicollinearity analysis was performed to arrive at the study results.
 Results: Results based on the five years of financial data indicated that liquidity, leverage, operating efficiency, dividend payout and market value of equity have negative relationship while profitability, firm size and growth have positive relationship with systematic risk.
 Conclusion: Except for profitability and growth, the significant relation of the other variables to beta shows that both investors and managers can utilize their movements to make sound financial decisions that will enhance value.

The drivers of systemic risk in financial networks: a data-driven machine learning analysis

The purpose of this paper is to assess the role of financial variables and network topology as determinants of systemic risk (SR). The SR, for different levels of the initial shock, is computed for institutions in the Brazilian interbank market by applying the differential DebtRank methodology. The financial institution(FI)-specific determinants of SR are evaluated through two machine learning techniques: XGBoost and random forest. Shapley values analysis provided a better interpretability for our results. Furthermore, we performed this analysis separately for banks and credit unions. We have found the importance of a given feature in driving SR varies with i) the level of the initial shock, ii) the type of FI, and iii) the dimension of the risk which is being assessed – i.e., potential loss caused by (systemic impact) or imputed to (systemic vulnerability) the FI. Systemic impact is mainly driven by topological features for both types of FIs. However, while the importance of topological features to the prediction of systemic impact of banks increases with the level of the initial shock, it decreases for credit unions. Concerning systemic vulnerability, this is mainly determined by financial features, whose importance increases with the initial shock level for both types of FIs.

Revisiting the effects of banks’ size on systemic risk: the role of banking sector concentration in the European Banking Union

ABSTRACT In order to contribute to the literature on bank size as a determinant of systemic risk, this article assesses whether the banks’ size effects on banks’ systemic risk exposure in the European Banking Union could be mitigated/aggravated when the banking sector concentration is taken into account. The results indicate that the banking sector concentration lowers the banks’ size effects on banks’ systemic risk exposure in the European Banking Union. Thus, this article advocates for mergers and acquisitions between banks in the European Banking Union.

The determinants of systematic risk: A firm lifecycle perspective

AbstractThis paper investigates how systematic risk varies over the lifecycle of the firm. If market equity beta is determined by firm characteristics as the literature on the determinants of systematic risk holds, and if those characteristics change over the lifecycle of the firm following a definite pattern as firm lifecycle theory suggests, then market equity beta should change over the lifecycle of the firm following a predictable pattern. Our findings indicate that holding other determinants of beta constant, the coefficient of systematic risk tends to fall in magnitude following a nonlinear pattern as firm age increases. In addition, we find that the volatility of market equity beta also tends to fall over the lifecycle of the firm. We argue that our main variable of concern, that is, firm age, proxies for variables that have hitherto been omitted in the literature on the determinants of systematic risk. In particular, we maintain that firm age proxies for the mispricing propensity that young firms lose as they mature. This research is useful for both practitioners and researchers in that it may suggest ways to adjust empirical estimates of systematic risk. In addition, our results are important for research on beta forecasting as they show that the length of the stationary interval of betas is shorter for young companies, and therefore it is necessary to take into account this time varying characteristic in the estimation process in order to improve the beta forecasting.

أثر مؤشرات السيولة والربحية والمديونية على المخاطر المنتظمة لأسهم قطاع العقارات المصرية The Impact of Liquidity, Profitability and Indebtedness Indicators on Systematic Risks of Stocks in the Egyptian Real Estate Sector

تهدف تلک الدراسة إلى اختبار أثر السيولة، الربحية، المديونية على المخاطر المنتظمة لأسهم (قطاع العقارات المصرية) متمثلة بمعاملات بيتا لهذه الأسهم، وذلک من خلال اختبار العلاقة بين المخاطر المنتظمة متمثلة في معامل بيتا لأسهم الشرکات موضع الدراسة والمدرجة في البورصة المصرية خلال الفترة يونيه 2014 حتى يونيه 2019، وبين مؤشرات تتعلق بالسيولة (ممثله بمتوسط نسبة التداول للشرکة) والربحية (ممثلة بمتوسط معدل العائد على حقوق الملکية للشرکة) والرفع المالي (ممثلة بمتوسط نسبة المديونية للشرکة).وتوصلت هذه الدراسة إلى أن هناک تأثرا ذو دلالة إحصائية لکل من متوسط نسبة التداول، ومتوسط معدل العائد على حقوق الملکية ومتوسط نسبة المديونية لشرکات قطاع العقارات المصرية على المخاطر المنتظمة لأسهم تلک الشرکات متمثلة في معامل بيتا لها، حيث فسر نموذج الانحدار المتعدد المستخدم في هذه الدراسة أن المتغير الأکثر تأثيرا في معامل بيتا هو متوسط معدل العائد على حقوق الملکية بينما ظهر من خلال النموذج المذکور أن متوسط نسبة السيولة هو المتغير الأقل تأثيرا، وأظهر التحليل الإحصائي أن متغير واحد من المتغيرات المستقلة الثلاثة وهو (متوسط نسب المديونية) أظهر علاقة منطقية مع المتغير التابع (علاقة طردية)، حيث من المنطقي أن تزداد المخاطر المنتظمة لسهم الشرکة مع زيادة مديونيتها، أما المتغير (متوسط نسبة التداول، متوسط معدل العائد على حقوق) أظهر علاقة غير منطقية مع المتغير التابع (علاقة طردية) حيث إن الغير منطقي أن تزداد المخاطر المنتظمة لسهم الشرکة مع زيادة سيولتها ومع زيادة معدل ربحية المالکين، وأوصت الدراسة بعدة توصيات أهمها:الاستفادة من نموذج هذه الدراسة عن اتخاذ قرار الاستثمار في القطاع العقاري المصري من حيث مراعاة محددات المخاطر المنتظمة (مديونية الشرکة وسيولتها والعائد على حقوق الملکية) والتي بدورها تؤثر على معدل العائد المطلوب على الاستثمار والذي بدورة يؤثر في قيمة الاستثمار المتوقعة. وإجراء المزيد من البحث لاکتشاف المزيد من العوامل المحددة للمخاطر المنتظمة. This study aims to identify the effect of liquidity, profitability, and debt on the systematic risks of the Egyptian real estate stocks represented by beta coefficients for these stocks. The relationship between systematic risks for the companies under study during the period June 2014 to June 2019 and liquidity (Represented by average company turnover), profitability (represented by the average rate of return on equity) and financial leverage (represented by the average debt ratio of the company) was investigated.There was a statistically significant impact for liquidity, profitability and financial leverage on systematic risks of stocks of the Egyptian real estate companies. Multiple regression results indicated that the most influential variable on beta coefficients is the average return on equity, while the average liquidity ratio is the least influential variable. One of the three independent variables in the model (Average debt ratios) had a logical relationship with the dependent variable, where it is typically expected that systematic risk increases with increasing indebtedness. On the other hand, according to multiple regression results, the relationship between systematic risk and both liquidity and profitability was unjustified.It was recommended to use similar models as the one adopted in this study when making an investment decision considering the determinants of systematic risk (the company’s debt and liquidity and rate of return on equity). It is also recommended that companies consider the degree to which these factors affect the value of the enterprise when making decisions affecting liquidity, debt and return on equity. Further research is encouraged to discover more determinants on the systematic risk of stocks in the Egyptian real estate sector.

Determinante sistematskog rizika u proceni vrednosti preduzeća u Republici Srbiji

Determinante sistematskog rizika u proceni vrednosti preduzeća u Republici Srbiji

The Role of Correlation in Systemic Risk: Mechanisms, Effects, and Policy Implications

One of the important determinants of systemic risk relies in the common exposure to exogenous shock sources. Contagion risks are, unfortunately, clearly known in the effects, but the mechanisms and determinants of systemic stability have not yet been sufficiently analyzed. The objective of this study is to examine in detail how the intensity of the common exposure to shocks, measured by the correlation with the exogenous variables, affects systemic risk. Results show that the role of correlation has different effects on the various banks, linked to the specific characteristics of the assets and liabilities of each one. These findings can be of significant support to crisis management, and regulatory and supervisory actions, aimed at minimizing the occurrence and impact of banking crises, for maintaining the banking and financial system stability. With reference to policy, our results suggest to keep the attention of regulation and supervision on the reduction of correlation to common risk sources. It can be obtained by rebalancing the risk weighting so to lower the capital coverage needs for the less correlated assets classes, as the SME loans, and to raise it for the more correlated ones, as the financial trading activity.

Internationalization as a determinant of systematic risk: the role of restaurant type

PurposeThe purpose of this study is twofold: to investigate the relationship between restaurant firms’ internationalization and systematic risk, and to further examine the relationship between internationalization and systematic risk based on the type of restaurant firm (i.e. limited-service vs full-service restaurants).Design/methodology/approachThis study analyzes data from US-based publicly traded restaurant firms by estimating systematic risk based on the Carhart four-factor model and by performing a two-way random-effects model.FindingsFindings support not only the risk-reduction effect of internationalization on systematic risk but also the moderating effect of the role of restaurant type on the relationship between internationalization and systematic risk. More specifically, the risk-reduction effect of internationalization on systematic risk is greater for limited-service than full-service restaurants.Practical implicationsThe findings of this study can provide restaurant executives with more confidence in pursuing internationalization as part of their risk management strategy, acknowledging that more international operations could mitigate restaurant firms’ systematic risk. More specifically, limited-service restaurants can more significantly enjoy the risk-reduction benefits by increasing their international operations than full-service restaurants based on the findings of this study. Furthermore, risk-averse investors could consider purchasing shares of limited-service multinational restaurants’ stocks to enjoy more risk-reduction benefits.Originality/valueBy focusing on the restaurant industry with consideration for the restaurant type, this study provides more tailored recommendations for implementing internationalization strategies with regard to risk management.

Determinants of systematic risk: Evidence from the Russian stock market

Determinants of systematic risk: Evidence from the Russian stock market

Factors Effecting Systematic Risk in Isolation vs. Pooled Estimation: Empirical Evidence from Banking, Insurance, and Non-Financial Sectors of Pakistan

The basic purpose of the financial manager is to maximize the wealth of shareholder by minimizing the risk. This study examines the validity of systematic risk determinants in banking, insurance, and non financial sectors of Pakistan. Panel data is used for the period of 2010 to 2014. Common Effect Model, Generalized Method of Moments and Two step regression model is used to identify the impact. Common effect results identify that leverage; operating efficiency, firm size, and market value of equity have significant impact on systematic risk in the banking sector. Firm size has significant impact on insurance sector, whereas liquidity, leverage, operating efficiency, firm size, market value of equity, profitability, and dividend pay-out are significant variables in the non-financial sector. In pooled data analysis leverage, firm size, market value of equity, and dividend pay-out are significant determinants in Common Effect Model and Two Step. However in GMM indicates that profitability has also positive impact on unsystematic risk in addition to Common effect and two step regression determinants. Policy implication indicates that shareholders and investors can maximize the return at low level of risk by investing in selected portfolios. It is finally concluded that variables significance changes from sector to sector in individual spectrum but in a pooled regression leverage and market value of equity has negative impact on systematic risk, whereas firm size, profitability and dividend pay-out has positive impact on systematic risk.

Interconnectedness and Systemic Risk of European Banks Over the Recent Crises

The recent financial turmoil has stimulated a rich debate in the banking and financial literature on the identification of the determinants of systemic risk, as well as of devices to forecast and prevent crises. In this paper, we explore the contribution of corporate variables on the systemic risk in a CoVar approach, as recently proposed by Adrian and Brunnermeier (2010, 2011, 2014). Using a unique sample of 141 European banks belonging to 24 European countries, continuously listed from 2006Q1 to 2012Q4, we investigate the impact of corporate variables over several regimes that characterised the European context in recent years, namely the subprime crisis (2007Q3-2008Q3), the European Great Financial Depression (2008Q4-2010Q2) and the sovereign debt crisis (2010Q3-2012Q4). There is evidence that size has not played a significant role in spreading systemic risk, the contrary holds true for maturity mismatch. However, the nature and the intensity of these two determinants vary across the three crises.

Determinants of Systematic Risk of Banking Sector in Indonesia Stock Exchange

Objective - Basically the purpose of the company is to add value and maximize the wealth of shareholders. The added value of the company is reflected in the price of shares traded in the capital market. Stock prices higher than the rate of return obtained will be high-risk is also high, the stock price lower than the rate of return and low risk will be obtained. Risk is one factor that should be considered by the company. Systematic risk is the risk that cannot be diversified by the company. Therefore, companies must be able to know the determinants of the systematic risk in the company. The banking sector is one sector that is directly related to systematic risk. Methodology/Technique - Sampling techniques by purposive sampling of the banks listed on the Indonesia Stock Exchange, from as many as 42 banks listed on the Indonesia Stock Exchange in accordance with the criteria as many as 31 banks. Technical analysis of the data conducted by data pool regression analysis. Findings - The analysis of data on the banking sector beta is found that the beta value of the entire bank listed on the Indonesian Stock Exchange is under one it indicates that the banking sector is not unduly influenced by changes in market conditions. Novelty - The research use combine financial ratio variable and macroeconomic variable Type of Paper - Empirical Keywords: Banking Sector, Capital Market, Determinant, Risk, Systematic Risk, Indonesia

Determinants of Systemic Risk: The Case of Egyptian Banks

This paper aims at analyzing the effects of “size”, “financial stability” and “equity return” on the systemic risk of Egyptian banks. This has been conducted using a sample of 11 banks (out of 14 banks listed in the Egyptian exchange), and covering the period from January 2003 to December 2013. Systemic risk is measured by “Value at Risk” that expresses the maximum loss within a q%-confidence interval during a certain period of time. Determinants of systemic risk to be examined, may be economic, as “size” in terms of TBTF rule. They may be financial, where “financial stability” is addressed as the ability of financial system to resolve systemic risks. Besides, “equity return” is assumed as a market determinant. Results indicate that size and financial stability may affect systemic risk of Egyptian banks during research period, using cross sectional analysis, by monthly returns (1-month, 0.99 VaR) for the pre-crisis, during-crisis and all the research periods. Also, robustness check investigates the effect of financial stability, using time series analysis, by daily returns (1-day, 0.99 VaR).

Determinants of systematic risk in the US Restaurant industry

To compare previous studies, this study re-examines the determinants of systematic risk in the restaurant industry. To estimate systematic risk, the authors specify flexible models that take care of serial dependence, autoregressive conditional heteroskedasticity and non-normality of the time series data. Using the estimated systematic risk, they analyse the determinants of risk using a quantile regression approach. The empirical results show that a firm’s liquidity ratio, efficiency ratio, debt leverage ratio and size are the main determinants of systematic risk in the restaurant industry. Moreover, it turns out that the effects of liquidity, debt leverage and efficiency decrease as the considered risk levels increase.

Analyzing the Determinants of Systematic Risk in the Jordanian Banking Sector

This research provides experienced more determinants behind the systematic risk surrounding banks. For this purpose, we use a number of regression models to test of there are statistical significance relations among a wide range of financial indicators and risk-assessment measure named “beta”. The results indicate that bank equity beta correlates positively with bank size, the volume of loans and the leverage ratio, and negatively with bank profitability, liquidity levels and loan loss provisions. The study refers to the Jordanian banking sector. Our findings are of significance both to bank managers as well as investors, since they will enable them to fully assess the effects of different strategic choices on a bank’s risk profile. We concluded potential policy implications regarding the impact of Basel III for observed risk-leverage relationship.

Too non-traditional to fail? Determinants of systemic risk for BRICs banks

This article empirically tests the ‘too non-traditional to fail’ argument by exploring the determinants of systemic risk for the BRICs banks. The argument is found not applicable for the BRICs banks, since the systemic risk is merely determined by balance-sheet characteristics, rather than non-traditional activities such as interbank exposures and off-balance commitment. In contrast, systemic risk for banks from the developped countries is related with both aspects.

What Factors Drive Systemic Risk during International Financial Crises?

We analyze the determinants of the contribution of international banks to both global and local systemic risk during prominent financial crises. We find no empirical evidence supporting the hypotheses that bank size, leverage, non-interest income or the quality of the bank’s credit portfolio are persistent determinants of systemic risk across financial crises. In contrast, our results show that global systemic risk in particular is predominantly driven by characteristics of the regulatory regime. We also confirm, for the subprime crisis, the hypothesis that the banks’ contribution to moderately bad tail events in the past predicts the financial sector’s crash risk.

Determinants of Systemic Risk and Information Dissemination

Determinants of Systemic Risk and Information Dissemination

Corporate tax rate as a determinant of systematic risk: Evidence from Pakistani cement sector

The main purpose of this study is to find the influence of corporate tax rate on systematic risk with three more variables (leverage, return on assets and market value of equity) by using cement sector data of Pakistan. This study used fifteen cement manufacturer data from 2004 to 2009 and fixed effect panel data random regression model. The result showed that corporate tax rate is not a determinant of systematic risk, but showed its effect through leverage, which is having statistically significant relationship with systematic risk. This study showed that leverage had significant influence in determining systematic risk and had positive relationship with systematic risk; whereas return on assets and market value of equity are positively related with systematic risk but had no significant influence on systematic risk. This study investigated the influence of corporate tax rate on systematic risk. This study also presented the managerial and policy related implications and recommendations from the study findings. Key words: Systematic risk, corporate tax rate, leverage, returns on assets, market value of equity, debt to equity ratio.

Bias And Random Measurement Error In Accounting-Based Surrogates For Internal Rate Of Return

<span>Limitations inherent in alternative profitability measures as estimates of internal rate of return (IRR) often require that managers and researchers employ accounting-based profitability measures. Using published accounting and stock market data, this study models accounting rate of return (ARR) and conditional estimate of internal rate of return (CIRR) as functions of product market risk; growth (g) inventory cost flow assumption (INV), and depreciation method (DE). The models support inferences about the bias and efficiency (i.e. systematic and random error) in the relationships between the two accounting-based profitability measure and IRR, as estimated by the bias and efficiency in their relationships with a factor that is suggested in the finance literature as a determinant of systematic risk (product market risk). The results indicate that ARR estimates IRR with bias attributable to g; however, ARR is unaffected by INV and DEP. Whether g, INV, or DEP affect CIRRs ability to estimate IRR depends on the interval over which CIRR is estimated and the assumed cash flow pattern. On the other hand, CIRR generally estimates IRR with significantly greater efficiency. These results have research design implications, as well as implications for both accounting policy formulation and anti-trust policies.</span>