SIMPOSIUM NASIONAL AKUNTANSI VI
Surabaya, 16 – 17 Oktober 2003
ANALYSIS OF ACCOUNTING BETAS MEASUREMENT
STIE Widya Manggala Semarang
The purpose of this study is to determine the significant of accounting beta (i.e., earning beta, fund flow beta
and cash flow beta) in relationship with market risk. The results indicate that operating cash flow risk measure (beta) is
significantly relate to market risk, while the others, earnings beta and fund flow beta, do not possess relate with market
risk. Adjusting with the issue of a thin trading bias in beta measurement, this study adjusted all the betas using
Vasicek Bayesian Method. The results are still consistent. The implication of the result is to prove that accounting
beta, especially cash flow beta, can be a surrogate to market beta or market risk.
accrual earnings, fund flow, operating cash flow, market risk, Vasicek Bayesian’s
The Indonesian institute of accountants (IAI) conceptual framework considers providing
information on an enterprise’s accrual earnings generating ability as the underlying objective of financial
reporting (IAI, 1999, par.22). While the IAI stresses the importance of accrual earnings, it nevertheless,
adopts the view that cash flows is basic to assessment performance of the firm in generating cash and cash
equivalent (IAI, 1999, statement of financial accounting standard No. 2).
The Financial Accounting Standards Board’s (FASB) conceptual framework considers providing
information on an enterprise’s cash flow generating ability as the underlying objective of financial reporting.
The FASB has recently issued SFAS No. 95 establishing standards for reporting cash flows in the financial
statements, superseding APB Opinion No. 19 (FASB1987). Similar with the IAI, while the FASB stresses
the importance of cash flows, it, nevertheless, adopts the views that accrual earnings may provide a better
indicator of enterprise performance than information about current cash flows (FASB, 1978, PAR. 44).
The hypothesis that accounting earnings is an empirical surrogate for (or indicator of) future cash
flows underlies the alleged the usefulness of earnings in assessing security value/risk. The idea that
earnings is a surrogate for future cash flows is consistent with the evidence that conclusively supports the
relation between earnings and security prices (Lev and Ohlson, 1982).
Ball and Brown (1969) investigated the usefulness of earnings in assessing security risk. Research
then tested the association between the market based beta and an accounting beta. Accounting beta (
expressed as the covariability of a firm’s accounting earnings with the accounting earnings of the market
= cov (
an accounting earnings and
is an accounting the market portfolio.
Spearman rank order
from Ball and Brown’s study show that for correlations between operating earnings and market beta is 0,46