Beta and Firm Age

68 Pages Posted: 14 Aug 2016 Last revised: 10 Jun 2019

See all articles by Ludwig B. Chincarini

Ludwig B. Chincarini

University of San Francisco School of Management; University of San Francisco - School of Business and Management

Daehwan Kim

Konkuk University

Fabio Moneta

Telfer School of Management, University of Ottawa

Date Written: June 5, 2019

Abstract

We document a robust pattern of beta declining over the age of a firm. We find that changes in systematic risk via firm characteristics and life-cycle stages are insufficient to explain this pattern. Moreover, standard proxies for the quantity and quality of information also explain this pattern only partially. To fully explain this pattern we rely on the increasingly important role of familiarity in financial decision making: familiarity is a determinant of beta and firm age is a proxy for the degree of familiarity that investors feel toward individual stocks. To illustrate the implication of our findings, we document that when we control for firm age there is support for the CAPM and the use of beta as input for the cost of equity capital calculation.

Keywords: time-varying beta, cost of capital, CAPM, firm age, estimation risk, familiarity

JEL Classification: G0

Suggested Citation

Chincarini, Ludwig B. and Kim, Daehwan and Moneta, Fabio, Beta and Firm Age (June 5, 2019). Available at SSRN: https://ssrn.com/abstract=2821852 or http://dx.doi.org/10.2139/ssrn.2821852

Ludwig B. Chincarini (Contact Author)

University of San Francisco School of Management ( email )

San Francisco, CA 94102
United States

University of San Francisco - School of Business and Management ( email )

San Francisco, CA 94117
United States

Daehwan Kim

Konkuk University ( email )

1 Hwayang-dong
Kwangjin-gu
Seoul, 143-701
Korea

Fabio Moneta

Telfer School of Management, University of Ottawa ( email )

136 Jean-Jacques Lussier Street
Ottawa, Ontario K1N 6N5
Canada

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