Study On The Relationship Between Growth Opportunity And Beta In China's Listed Companies

In 1964, William·Sharp,etc deduced the risky asset pricing model and develpoed the new method in which systematic risk is measured by beta coefficient. From then on, Capital Asset Pricing Model (CAPM) has been considered as the classcial model to explore the relationship between security's return and risk. As a key factor in CAPM, beta is a measurement of correlation between the price fluctuations of individual security or portfolios and the average price fluctuations of overall security market and reflects the elasticity between the rate of return of individual security or portfolios and the rate of return of market. Therefore beta is called "systematic risk coefficient".The risk of listed companies is depended upon not only fundamental factors but also the characteristics of the security market. Beaver, etc carried out the earliest research on which element have impact on beta, their empirical result suggested that company's fundamental factors such as profit variation, dividend payout and financial leverage have significant influences on beta. Since then many scholars dedicated theirself to the study about the influential factors on beta, in particular with respect to the company's fundamental factors.Many foreign studies have concentrated and deepen the research on the relationship between growth opportunity and beta, especially in well-developed capital markets. Their theoretical and empirical studies suggested that growth opportunity is an important factor which influences a company's beta. However, the empirical studies in China started late and there is little empirical research evidence on these issues on China's stock market. Furthermore, compared with foreign studies, there are some shortages in the selection of variables, scope of sample and study methods in our country's studies. Meanwhile, their researches on beta neglect the influence of growth opportunity. Consequently, based on the previous studies, this paper makes some improvements in these aspects and does some groping studies.Our study, using pooled cross-sectional observations of companies listed on the Shanghai and Shenzhen Stock Exchange from 2003 to 2008, examines the relationship between growth opportunities and beta. Growth opportunities are measured in terms of four ratios, market value of the firm to book values of assets, market value of equity to book value of equity, book value of tangible assets to market value of the firm and earning to price.The empirical results show that growth opportunities have significantly positive influences on beta after controlling for size of total assets, the growth rate of total assets, the debt-to-asset ratio, the current ratio, profit variation, dividend payout and industry these seven factors. The higher growth opportunities a company possess, the larger beta it has. Moreover, we find that firm's profit variation and dividend payout have significant negative influences on beta, and firm's size have positive influences on beta. Industry also has significant impact on beta, such as material industry, daily consupmtion industry and medical industry. But inconsistent with prior studies, the debt-to-asset ratio, the current ratio and the growth rate of total assets are not found to be associated with beta in our study.