Fundamental beta with firm specific variables and its implementation for developed markets

Risk in financial markets is divided into two main categories: systematic (market-specific) and non-systematic (company-specific) risk. While systematic risk arises from general fluctuations in the market, the beta coefficient is used as a basic indicator in measuring this risk. However, firm specific variables and managerial dynamics can also significantly affect the sensitivity of the company to external environmental factors. Since the financial statements of companies reflect not only financial performance but also management style and internal dynamics, they allow a relationship to be established between systematic risk and firm specific variables. The main purpose of the study is to analyze the effect of these factors that determine the financial performance of companies on systematic risk and to reveal the relationship between financial indicators and the beta coefficient. In other words, it is aimed to investigate whether firm-specific variables have an impact on the level of risks developing outside the firm The relationship between firm-specific variables and systematic risk was first introduced within the framework of the 'fundamental beta' concept in a study by Beaver, Kettler, and Scholes in 1970. In this study, the calculation of fundamental beta was conducted by incorporating a sample of 18 countries classified as developed by Morgan Stanley Capital International (MSCI), including Australia, Canada, Denmark, France, Germany, Hong Kong, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Singapore, Spain, Sweden, Switzerland, the United Kingdom, and the United States. The annual financial data of a total of 418 companies operating in the energy, raw material and industry sectors between 2016 and 2023 were used within the scope of the sample. The dependent variable in the study is the beta coefficient, which is an indicator of systematic risk. The independent variables include dividend per share, quick ratio, return on assets, earnings before interest and taxes (EBIT), total assets, liabilties-to-assets ratio and asset turnover. As a result of the study using the panel regression analysis method, it was found that asset turnover, dividend per share and return on assets have a negative and significant effect on the systematic risk coefficient, beta. A positive and significant effect of earnings before interest and taxes, liabilities-to-assets ratio and total assets on the systematic risk indicator beta coefficient was found. In addition, cluster analysis method was used to test the existence of any effect specific to the countries in the sample used in the research. Accordingly, the companies in the sample were divided into 3 main clusters based on variables. In the regression results made by adding the clusters as dummy variables, it was revealed that the effect of the independent variables showing significant differences varied according to the companies in different clusters. Keywords: Beta, risk, systematic risk, financial management, financial performance.