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 (
) is expressed as the covariability of a
firm’s accounting earnings with the accounting earnings of the market portfolio:
= 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