Economic And Financial Determinants Of Systematic Risk In The Area Euro: An Empirical Investigation In The Manufacturing Sector

The purpose of this paper is to examine the risk features of manufacturing listed companies located in the Area Euro. In particular the work aims to identify economic-financial determinants with impact on systematic risk. We use Ordinary Least Squares (OLS) multiple linear regression: equity market beta is the proxy of systematic risk; explanatory variables are logarithm of total assets, logarithm of operating revenue, asset turnover ratio, ebitda margin, return on equity, return on asset, current ratio, shareholders funds over total liabilities ratio, financial debts over shareholders funds ratio. These measures reflect firm’s specific characteristics in terms of size, efficiency, profitability, liquidity and financial structure. Using a sample of 635 companies we find evidence that systematic risk of manufacturing listed firms is negatively affected by shareholders funds over total liabilities ratio, ebitda margin and return on equity. Other measures fail to have a significant impact on beta. Findings are similar with earlier studies. Results have practical implications for investors considering that knowing the link between systematic risk and economic and financial factors could help investors in their portfolio diversification and in the maximization of returns. For businesses, however, evidence allows to minimize systematic risk and consequently to enhance company value.