The adaptability of fundamental beta: a cross-sector analysis of European listed firms

The aim of the work is to investigate the adaptability of the fundamental beta approach to European listed companies, distinguishing by industries. Furthermore, the analysis context refers to the concept of total beta, in order to use the model also for unlisted companies. Using the multiple linear regression model, we have defined a single model for each individual sector, with the objective of interpreting the results and their significance. Therefore, starting from the significant accounting variables represented in the literature and analyzing the 2020-2022 period, we have found that the fundamental beta model is more appropriate for some sectors, such as Mining and Agricolture that show higher r-square. The results highlight a high variability of the r-squared in the analyzed sectors. We have also found divergent results regarding the significance of accounting variables: size is significant in 50% of industries, ROE in 45%, while other variables have lower impact. These findings offer practical implications, especially in the field of valuation: not all fundamental beta models are directly applicable for all business sectors. Regarding academic implications, the results contribute to the framework of alternative methods of calculating the cost of equity.