The Suitability of Proxy Levered Beta in Business Valuation: Evidence from Vietnam

Abstract

Article History JEL Classification: E44This study aims to test the suitability of Proxy Levered Beta (PLB) in the context of corporate valuation in Vietnam. In particular, there are two main issues clarified in this paper: (i) whether there is a significant relationship between financial leverage, operating leverage, and systematic risk; and (ii) whether PLB can be an alternative of Market-Based Beta (MBB). By estimating with the panel data collected from nonfinancial firms listed on Ho Chi Minh Stock Exchange (HoSE) during the period 2010-2015, the empirical findings show that: (i) the operating leverage and financial leverage have a significant impact on systematic risk; (ii) PLB with adjusted financial leverage will be the most effective measure of MBB; and (iii) the new standard of industry classification on HoSE will not suitable to represent the systematic risk when measuring PLB in Vietnam.Contribution/ Originality: This study contributes in the existing literature in two ways: (i) concurrently considering both financial and operating leverage when adjusted beta coefficient instead of just financial leverage as previous studies; and (ii) providing the empirical evidence so that appraisers may not only apply them in Vietnam but also explain the valuation result to consumer convincingly.

Modeling the selection of comparable firms: A novel approach for business valuation in ASEAN nations

“…These findings are consistent with the arguments of Bhojraj and Lee (2002). Kim-Duc and To (2015) and Kim-Duc et al (2018) employed the same risk classification to choose comparable firms to test the suitability of proxy-levered beta (PLB). The results of these two studies suggest that further research should be an empirical study on how to select comparable companies for higher effectiveness of PLB in the replacement of market-based beta.…”

“…This is valuable information for valuers who typically use the same industry to select comparable firms. However, the empirical results of Kim-Duc et al (2018) show that even when employing the new international mechanism of industry classification, peers may be less appropriate when representing risk classification in Vietnam. Kim-Duc et al (2018) also argue that further research should be an empirical study on how to select comparable enterprises.…”