The use of the accounting beta as an overall risk indicator for unlisted companies

Abstract

Purpose

The purpose of this research is to verify whether or not the accounting beta, a recognized measure of overall risk in publicly traded companies, can be used with unlisted businesses.

Design/methodology/approach

The paper presents an empirical study using factorial and regression analysis to measure which components of the global risk of SMEs are linked to accounting beta.

Findings

The results show that accounting beta does not seem to constitute a global measure of SMEs' risk, being explained mostly by financial risk and not by commercial, technological, management and entrepreneurial risks components.

Research limitations/implications

Researchers will have to turn towards other models than accounting beta that include financial and nonfinancial dimensions of risk in order to obtain an adequate assessment of the overall SMEs' risk.

Practical implications

Risk is the element that determines access to external financing as well as the lending conditions. Results obtained in this research show that accounting data cannot be used to express overall risk of SMEs, because they are not global enough and are not good predictors of future situations.

Originality/value

This article presents limits inherent to financial data to properly measured global risk of SMEs.

Citation

St‐Pierre, J. and Bahri, M. (2006), "The use of the accounting beta as an overall risk indicator for unlisted companies", Journal of Small Business and Enterprise Development, Vol. 13 No. 4, pp. 546-561. https://doi.org/10.1108/14626000610705741