Toms, JS (2014) Accounting-based Risk Management and the Capital Asset Pricing Model: An Empirical Comparison. Australian Accounting Review, 24 (2). 127 - 133. ISSN 1035-6908
Abstract
Accounting-based risk management (ABRM) is a theoretically consistent and practical tool for calculating the cost of capital from underlying financial ratios. In this paper, a sample of ABRM-generated discount factors is used to generate risk-adjusted returns, which are compared to CAPM equivalent discount factors. In view of the debates about CAPM's validity, alternative models, the nature and scale of the equity risk premium, and the importance of discount rates in capital budgeting and asset valuation, ABRM's characteristics and resulting discount rates offer a potentially useful alternative. Results suggest that although average discount rates are comparable, their cross-sectional distributions are dissimilar, so that investors in an average risky firm are overcompensated for systematic risk when using CAPM discount rates, because CAPM discount factors overestimate risk arising from fixed costs in most firms.
Metadata
Item Type: | Article |
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Authors/Creators: |
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Copyright, Publisher and Additional Information: | (c) 2014, CPA Australia. This is the peer reviewed version of the following article: [Toms, JS (2014) Accounting-based Risk Management and the Capital Asset Pricing Model: An Empirical Comparison. Australian Accounting Review, 24 (2). 127 - 133. ISSN 1035-6908, which has been published in final form at http://dx.doi.org/10.1111/j.1835-2561.2013.00201.x . This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving. Uploaded in accordance with the publisher's self-archiving policy. |
Dates: |
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Institution: | The University of Leeds |
Academic Units: | The University of Leeds > Faculty of Business (Leeds) > Accounting & Finance Division (LUBS) (Leeds) |
Depositing User: | Symplectic Publications |
Date Deposited: | 13 Feb 2014 14:30 |
Last Modified: | 07 Jul 2015 10:49 |
Published Version: | http://dx.doi.org/10.1111/j.1835-2561.2013.00201.x |
Status: | Published |
Publisher: | Wiley |
Identification Number: | 10.1111/j.1835-2561.2013.00201.x |
Open Archives Initiative ID (OAI ID): | oai:eprints.whiterose.ac.uk:77800 |