Meaning and Problems of Identification of Beta Coefficient When Valuing Financial Institutions

Milan Hrdý and Markéta Pláničková

Prague Economic Papers, 2019, vol. 2019, issue 4, 479-495

Abstract: The aim of this article consists in the analysis of the beta coefficient presented in different areas for three types of financial institutions: banks, investment banks and life insurance companies. In the final evaluation, we analyse whether the beta coefficient has a high tendency to reach number one and whether there is a relatively stabilized position of the beta coefficient different from one for a certain period and a certain financial institution on a certain market and whether it is possible to avoid a relatively complicated process of beta coefficient identification in income valuation. For that reason, the analysis of the five-year beta coefficient in the years 2000-2014 was performed for the USA, developed European, emerging European, developed Asian and emerging Asian regions. The analysis proved that the beta coefficient values are lower than the "magic one", meaning that using a beta coefficient equal to one is possible only in some specific cases. Also, stability of the beta coefficient with some permitted deviation was identified only for some financial institutions and for some markets, for example 0.6 for banks on the developed Asian market and 0.35 on the US market.

Keywords: valuation; beta coefficient; analysis; financial institutions (search for similar items in EconPapers)
JEL-codes: G21 G22 G32 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.18267/j.pep.704

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