Full-Information Industry Betas

The process of estimating an industry cost of capital is complicated by the fact that many firms operate in multiple industries. Conglomerates are typically excluded from a pure-play industry analysis since their operations span more than one line of business. We argue that excluding these firms int...

Full description

Saved in:
Bibliographic Details
Published in:Financial management 1998-07, Vol.27 (2), p.85-93
Main Authors: Kaplan, Paul D., Peterson, James D.
Format: Article
Language:English
Subjects:
Banking industry
Beta
Business conglomerates
Business structures
Capital assets pricing model
Capital budgets
Capital costs
Capital expenditures
Conglomerate corporations
Conglomerates
Divisions
Equity
Estimates
Estimation methods
Financial analysis
Industrial market
Industry
Industry analysis
Industrywide conditions
Information industry
Market capitalization
Real estate industry
Regulated industries
Risk assessment
Securities analysis
Securities markets
Tobacco industry
Citations: Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
cited_by cdi_FETCH-LOGICAL-c337t-ad43f914c3e93057923ddc3825aaa779ecdc61a1ea8af6a74c63a5c8c9a38bfa3
cites
container_end_page 93
container_issue 2
container_start_page 85
container_title Financial management
container_volume 27
creator Kaplan, Paul D.
Peterson, James D.
description The process of estimating an industry cost of capital is complicated by the fact that many firms operate in multiple industries. Conglomerates are typically excluded from a pure-play industry analysis since their operations span more than one line of business. We argue that excluding these firms introduces and upward bias into industry beta estimates. This is because the betas of large-market-capitalization firms tend to be lower than the betas of small-capitalization firms. Betas are estimated for 66 industries using both a pure-play and a full-information approach. The full-information approach incorporates industry-specific information contained in the betas of conglomerates into the industry beta estimation process. Our results show that full-information beta estimates are substantially smaller than their pure-play counterparts.
doi_str_mv 10.2307/3666295
format article
fullrecord <record><control><sourceid>gale_proqu</sourceid><recordid>TN_cdi_proquest_journals_208175353</recordid><sourceformat>XML</sourceformat><sourcesystem>PC</sourcesystem><galeid>A21034077</galeid><jstor_id>3666295</jstor_id><sourcerecordid>A21034077</sourcerecordid><originalsourceid>FETCH-LOGICAL-c337t-ad43f914c3e93057923ddc3825aaa779ecdc61a1ea8af6a74c63a5c8c9a38bfa3</originalsourceid><addsrcrecordid>eNp10UFLwzAUB_AgCs4pfgHBoQcvVpO8JmmPczgdDLwoeCvPNBkdXTOT9LBvb6TTkxIegeTHe_x5hJwzeseBqnuQUvJSHJARU0JkVMD7IRlRmssMipIfk5MQ1pQyTrkckct537bZorPObzA2rpssuroP0e8mDyZiOCVHFttgzvb3mLzNH19nz9ny5Wkxmy4zDaBihnUOtmS5BlMCFarkUNcaCi4QUanS6FpLhsxggVaiyrUEFLrQJULxYRHG5Grou_XuszchVmvX-y6NrDgtUhIQkND1f4ilyKl4YmNyO6gVtqZqUrToUa9MZzy2rjO2Sc9TzijkVKnEsz94OrXZNPovfzN47V0I3thq65sN-l3FaPW9gWq_gSQvBrkO0flf9vP9BYlXfh0</addsrcrecordid><sourcetype>Aggregation Database</sourcetype><iscdi>true</iscdi><recordtype>article</recordtype><pqid>1295129235</pqid></control><display><type>article</type><title>Full-Information Industry Betas</title><source>EconLit s plnými texty</source><source>International Bibliography of the Social Sciences (IBSS)</source><source>JSTOR Archival Journals and Primary Sources Collection</source><source>ABI/INFORM Global</source><source>BSC - Ebsco (Business Source Ultimate)</source><creator>Kaplan, Paul D. ; Peterson, James D.</creator><creatorcontrib>Kaplan, Paul D. ; Peterson, James D.</creatorcontrib><description>The process of estimating an industry cost of capital is complicated by the fact that many firms operate in multiple industries. Conglomerates are typically excluded from a pure-play industry analysis since their operations span more than one line of business. We argue that excluding these firms introduces and upward bias into industry beta estimates. This is because the betas of large-market-capitalization firms tend to be lower than the betas of small-capitalization firms. Betas are estimated for 66 industries using both a pure-play and a full-information approach. The full-information approach incorporates industry-specific information contained in the betas of conglomerates into the industry beta estimation process. Our results show that full-information beta estimates are substantially smaller than their pure-play counterparts.</description><identifier>ISSN: 0046-3892</identifier><identifier>EISSN: 1755-053X</identifier><identifier>DOI: 10.2307/3666295</identifier><language>eng</language><publisher>Albany, N.Y: Financial Management Association</publisher><subject>Banking industry ; Beta ; Business conglomerates ; Business structures ; Capital assets pricing model ; Capital budgets ; Capital costs ; Capital expenditures ; Conglomerate corporations ; Conglomerates ; Divisions ; Equity ; Estimates ; Estimation methods ; Financial analysis ; Industrial market ; Industry ; Industry analysis ; Industrywide conditions ; Information industry ; Market capitalization ; Real estate industry ; Regulated industries ; Risk assessment ; Securities analysis ; Securities markets ; Tobacco industry</subject><ispartof>Financial management, 1998-07, Vol.27 (2), p.85-93</ispartof><rights>Copyright 1998 Financial Management Association International</rights><rights>COPYRIGHT 1998 Financial Management Association</rights><rights>Copyright Financial Management Association Summer 1998</rights><lds50>peer_reviewed</lds50><woscitedreferencessubscribed>false</woscitedreferencessubscribed><citedby>FETCH-LOGICAL-c337t-ad43f914c3e93057923ddc3825aaa779ecdc61a1ea8af6a74c63a5c8c9a38bfa3</citedby></display><links><openurl>$$Topenurl_article</openurl><openurlfulltext>$$Topenurlfull_article</openurlfulltext><thumbnail>$$Tsyndetics_thumb_exl</thumbnail><linktopdf>$$Uhttps://www.proquest.com/docview/1295129235/fulltextPDF?pq-origsite=primo$$EPDF$$P50$$Gproquest$$H</linktopdf><linktohtml>$$Uhttps://www.proquest.com/docview/208175353?pq-origsite=primo$$EHTML$$P50$$Gproquest$$H</linktohtml><link.rule.ids>314,780,784,11688,11906,12847,27924,27925,33223,36050,36060,44361,44363,58238,58471,74765,74767</link.rule.ids></links><search><creatorcontrib>Kaplan, Paul D.</creatorcontrib><creatorcontrib>Peterson, James D.</creatorcontrib><title>Full-Information Industry Betas</title><title>Financial management</title><description>The process of estimating an industry cost of capital is complicated by the fact that many firms operate in multiple industries. Conglomerates are typically excluded from a pure-play industry analysis since their operations span more than one line of business. We argue that excluding these firms introduces and upward bias into industry beta estimates. This is because the betas of large-market-capitalization firms tend to be lower than the betas of small-capitalization firms. Betas are estimated for 66 industries using both a pure-play and a full-information approach. The full-information approach incorporates industry-specific information contained in the betas of conglomerates into the industry beta estimation process. Our results show that full-information beta estimates are substantially smaller than their pure-play counterparts.</description><subject>Banking industry</subject><subject>Beta</subject><subject>Business conglomerates</subject><subject>Business structures</subject><subject>Capital assets pricing model</subject><subject>Capital budgets</subject><subject>Capital costs</subject><subject>Capital expenditures</subject><subject>Conglomerate corporations</subject><subject>Conglomerates</subject><subject>Divisions</subject><subject>Equity</subject><subject>Estimates</subject><subject>Estimation methods</subject><subject>Financial analysis</subject><subject>Industrial market</subject><subject>Industry</subject><subject>Industry analysis</subject><subject>Industrywide conditions</subject><subject>Information industry</subject><subject>Market capitalization</subject><subject>Real estate industry</subject><subject>Regulated industries</subject><subject>Risk assessment</subject><subject>Securities analysis</subject><subject>Securities markets</subject><subject>Tobacco industry</subject><issn>0046-3892</issn><issn>1755-053X</issn><fulltext>true</fulltext><rsrctype>article</rsrctype><creationdate>1998</creationdate><recordtype>article</recordtype><sourceid>8BJ</sourceid><sourceid>M0C</sourceid><recordid>eNp10UFLwzAUB_AgCs4pfgHBoQcvVpO8JmmPczgdDLwoeCvPNBkdXTOT9LBvb6TTkxIegeTHe_x5hJwzeseBqnuQUvJSHJARU0JkVMD7IRlRmssMipIfk5MQ1pQyTrkckct537bZorPObzA2rpssuroP0e8mDyZiOCVHFttgzvb3mLzNH19nz9ny5Wkxmy4zDaBihnUOtmS5BlMCFarkUNcaCi4QUanS6FpLhsxggVaiyrUEFLrQJULxYRHG5Grou_XuszchVmvX-y6NrDgtUhIQkND1f4ilyKl4YmNyO6gVtqZqUrToUa9MZzy2rjO2Sc9TzijkVKnEsz94OrXZNPovfzN47V0I3thq65sN-l3FaPW9gWq_gSQvBrkO0flf9vP9BYlXfh0</recordid><startdate>19980701</startdate><enddate>19980701</enddate><creator>Kaplan, Paul D.</creator><creator>Peterson, James D.</creator><general>Financial Management Association</general><general>Financial Management Association International</general><general>Blackwell Publishing Ltd</general><scope>AAYXX</scope><scope>CITATION</scope><scope>ABKTN</scope><scope>ACNBF</scope><scope>HYQOX</scope><scope>JILTI</scope><scope>K30</scope><scope>PAAUG</scope><scope>PAWHS</scope><scope>PAWZZ</scope><scope>PAXOH</scope><scope>PBHAV</scope><scope>PBQSW</scope><scope>PBYQZ</scope><scope>PCIWU</scope><scope>PCMID</scope><scope>PCZJX</scope><scope>PDGRG</scope><scope>PDWWI</scope><scope>PETMR</scope><scope>PFVGT</scope><scope>PGXDX</scope><scope>PIHIL</scope><scope>PISVA</scope><scope>PJCTQ</scope><scope>PJTMS</scope><scope>PLCHJ</scope><scope>PMHAD</scope><scope>PNQDJ</scope><scope>POUND</scope><scope>PPLAD</scope><scope>PQAPC</scope><scope>PQCAN</scope><scope>PQCMW</scope><scope>PQEME</scope><scope>PQHKH</scope><scope>PQMID</scope><scope>PQNCT</scope><scope>PQNET</scope><scope>PQSCT</scope><scope>PQSET</scope><scope>PSVJG</scope><scope>PVMQY</scope><scope>PZGFC</scope><scope>~P6</scope><scope>0U~</scope><scope>1-H</scope><scope>3V.</scope><scope>7WY</scope><scope>7WZ</scope><scope>7X1</scope><scope>7XB</scope><scope>87Z</scope><scope>88C</scope><scope>8A9</scope><scope>8AO</scope><scope>8BF</scope><scope>8BJ</scope><scope>8FI</scope><scope>8FJ</scope><scope>8FK</scope><scope>8FL</scope><scope>ABUWG</scope><scope>AFKRA</scope><scope>ANIOZ</scope><scope>AXJJW</scope><scope>BENPR</scope><scope>BEZIV</scope><scope>CCPQU</scope><scope>DWQXO</scope><scope>FQK</scope><scope>FRAZJ</scope><scope>FREBS</scope><scope>FRNLG</scope><scope>FYUFA</scope><scope>F~G</scope><scope>GHDGH</scope><scope>JBE</scope><scope>K60</scope><scope>K6~</scope><scope>L.-</scope><scope>L.0</scope><scope>M0C</scope><scope>M0Q</scope><scope>M0T</scope><scope>PQBIZ</scope><scope>PQBZA</scope><scope>PQEST</scope><scope>PQQKQ</scope><scope>PQUKI</scope><scope>PRINS</scope><scope>Q9U</scope><scope>S0X</scope></search><sort><creationdate>19980701</creationdate><title>Full-Information Industry Betas</title><author>Kaplan, Paul D. ; Peterson, James D.</author></sort><facets><frbrtype>5</frbrtype><frbrgroupid>cdi_FETCH-LOGICAL-c337t-ad43f914c3e93057923ddc3825aaa779ecdc61a1ea8af6a74c63a5c8c9a38bfa3</frbrgroupid><rsrctype>articles</rsrctype><prefilter>articles</prefilter><language>eng</language><creationdate>1998</creationdate><topic>Banking industry</topic><topic>Beta</topic><topic>Business conglomerates</topic><topic>Business structures</topic><topic>Capital assets pricing model</topic><topic>Capital budgets</topic><topic>Capital costs</topic><topic>Capital expenditures</topic><topic>Conglomerate corporations</topic><topic>Conglomerates</topic><topic>Divisions</topic><topic>Equity</topic><topic>Estimates</topic><topic>Estimation methods</topic><topic>Financial analysis</topic><topic>Industrial market</topic><topic>Industry</topic><topic>Industry analysis</topic><topic>Industrywide conditions</topic><topic>Information industry</topic><topic>Market capitalization</topic><topic>Real estate industry</topic><topic>Regulated industries</topic><topic>Risk assessment</topic><topic>Securities analysis</topic><topic>Securities markets</topic><topic>Tobacco industry</topic><toplevel>peer_reviewed</toplevel><toplevel>online_resources</toplevel><creatorcontrib>Kaplan, Paul D.</creatorcontrib><creatorcontrib>Peterson, James D.</creatorcontrib><collection>CrossRef</collection><collection>Periodicals Archive Online JSTOR Titles</collection><collection>Periodicals Archive Online Collection 6 (2022)</collection><collection>ProQuest Historical Periodicals</collection><collection>Periodicals Index Online Segment 32</collection><collection>Periodicals Index Online</collection><collection>Primary Sources Access—Foundation Edition (Plan E) - West</collection><collection>Primary Sources Access (Plan D) - International</collection><collection>Primary Sources Access &amp; Build (Plan A) - MEA</collection><collection>Primary Sources Access—Foundation Edition (Plan E) - Midwest</collection><collection>Primary Sources Access—Foundation Edition (Plan E) - Northeast</collection><collection>Primary Sources Access (Plan D) - Southeast</collection><collection>Primary Sources Access (Plan D) - North Central</collection><collection>Primary Sources Access—Foundation Edition (Plan E) - Southeast</collection><collection>Primary Sources Access (Plan D) - South Central</collection><collection>Primary Sources Access &amp; Build (Plan A) - UK / I</collection><collection>Primary Sources Access (Plan D) - Canada</collection><collection>Primary Sources Access (Plan D) - EMEALA</collection><collection>Primary Sources Access—Foundation Edition (Plan E) - North Central</collection><collection>Primary Sources Access—Foundation Edition (Plan E) - South Central</collection><collection>Primary Sources Access &amp; Build (Plan A) - International</collection><collection>Primary Sources Access—Foundation Edition (Plan E) - International</collection><collection>Primary Sources Access (Plan D) - West</collection><collection>Periodicals Index Online Segments 1-50</collection><collection>Primary Sources Access (Plan D) - APAC</collection><collection>Primary Sources Access (Plan D) - Midwest</collection><collection>Primary Sources Access (Plan D) - MEA</collection><collection>Primary Sources Access—Foundation Edition (Plan E) - Canada</collection><collection>Primary Sources Access—Foundation Edition (Plan E) - UK / I</collection><collection>Primary Sources Access—Foundation Edition (Plan E) - EMEALA</collection><collection>Primary Sources Access &amp; Build (Plan A) - APAC</collection><collection>Primary Sources Access &amp; Build (Plan A) - Canada</collection><collection>Primary Sources Access &amp; Build (Plan A) - West</collection><collection>Primary Sources Access &amp; Build (Plan A) - EMEALA</collection><collection>Primary Sources Access (Plan D) - Northeast</collection><collection>Primary Sources Access &amp; Build (Plan A) - Midwest</collection><collection>Primary Sources Access &amp; Build (Plan A) - North Central</collection><collection>Primary Sources Access &amp; Build (Plan A) - Northeast</collection><collection>Primary Sources Access &amp; Build (Plan A) - South Central</collection><collection>Primary Sources Access &amp; Build (Plan A) - Southeast</collection><collection>Primary Sources Access (Plan D) - UK / I</collection><collection>Primary Sources Access—Foundation Edition (Plan E) - APAC</collection><collection>Primary Sources Access—Foundation Edition (Plan E) - MEA</collection><collection>PAO ProQuest</collection><collection>Global News &amp; ABI/Inform Professional</collection><collection>Trade PRO</collection><collection>ProQuest Central (Corporate)</collection><collection>ABI/INFORM Collection</collection><collection>ABI/INFORM Global (PDF only)</collection><collection>Accounting &amp; Tax Database (Proquest)</collection><collection>ProQuest Central (purchase pre-March 2016)</collection><collection>ABI/INFORM Collection</collection><collection>Healthcare Administration Database (Alumni)</collection><collection>Accounting &amp; Tax Database (Alumni Edition)</collection><collection>ProQuest Pharma Collection</collection><collection>European Business Database (Alumni Edition)</collection><collection>International Bibliography of the Social Sciences (IBSS)</collection><collection>Hospital Premium Collection</collection><collection>Hospital Premium Collection (Alumni Edition)</collection><collection>ProQuest Central (Alumni) (purchase pre-March 2016)</collection><collection>ABI/INFORM Collection (Alumni Edition)</collection><collection>ProQuest Central (Alumni)</collection><collection>ProQuest Central</collection><collection>Accounting, Tax &amp; Banking Collection (ProQuest)</collection><collection>Asian &amp; European Business Collection</collection><collection>ProQuest Central</collection><collection>ProQuest Business Premium Collection</collection><collection>ProQuest One Community College</collection><collection>ProQuest Central</collection><collection>International Bibliography of the Social Sciences</collection><collection>Accounting, Tax &amp; Banking Collection (Alumni)</collection><collection>Asian &amp; European Business Collection (Alumni)</collection><collection>Business Premium Collection (Alumni)</collection><collection>Health Research Premium Collection</collection><collection>ABI/INFORM Global (Corporate)</collection><collection>Health Research Premium Collection (Alumni)</collection><collection>International Bibliography of the Social Sciences</collection><collection>ProQuest Business Collection (Alumni Edition)</collection><collection>ProQuest Business Collection</collection><collection>ABI/INFORM Professional Advanced</collection><collection>ABI/INFORM Professional Standard</collection><collection>ABI/INFORM Global</collection><collection>European Business Database</collection><collection>Health Management Database (Proquest)</collection><collection>One Business (ProQuest)</collection><collection>ProQuest One Business (Alumni)</collection><collection>ProQuest One Academic Eastern Edition (DO NOT USE)</collection><collection>ProQuest One Academic</collection><collection>ProQuest One Academic UKI Edition</collection><collection>ProQuest Central China</collection><collection>ProQuest Central Basic</collection><collection>SIRS Editorial</collection><jtitle>Financial management</jtitle></facets><delivery><delcategory>Remote Search Resource</delcategory><fulltext>fulltext</fulltext></delivery><addata><au>Kaplan, Paul D.</au><au>Peterson, James D.</au><format>journal</format><genre>article</genre><ristype>JOUR</ristype><atitle>Full-Information Industry Betas</atitle><jtitle>Financial management</jtitle><date>1998-07-01</date><risdate>1998</risdate><volume>27</volume><issue>2</issue><spage>85</spage><epage>93</epage><pages>85-93</pages><issn>0046-3892</issn><eissn>1755-053X</eissn><abstract>The process of estimating an industry cost of capital is complicated by the fact that many firms operate in multiple industries. Conglomerates are typically excluded from a pure-play industry analysis since their operations span more than one line of business. We argue that excluding these firms introduces and upward bias into industry beta estimates. This is because the betas of large-market-capitalization firms tend to be lower than the betas of small-capitalization firms. Betas are estimated for 66 industries using both a pure-play and a full-information approach. The full-information approach incorporates industry-specific information contained in the betas of conglomerates into the industry beta estimation process. Our results show that full-information beta estimates are substantially smaller than their pure-play counterparts.</abstract><cop>Albany, N.Y</cop><pub>Financial Management Association</pub><doi>10.2307/3666295</doi><tpages>9</tpages></addata></record>
fulltext fulltext
identifier ISSN: 0046-3892
ispartof Financial management, 1998-07, Vol.27 (2), p.85-93
issn 0046-3892
1755-053X
language eng
recordid cdi_proquest_journals_208175353
source EconLit s plnými texty; International Bibliography of the Social Sciences (IBSS); JSTOR Archival Journals and Primary Sources Collection; ABI/INFORM Global; BSC - Ebsco (Business Source Ultimate)
subjects Banking industry
Beta
Business conglomerates
Business structures
Capital assets pricing model
Capital budgets
Capital costs
Capital expenditures
Conglomerate corporations
Conglomerates
Divisions
Equity
Estimates
Estimation methods
Financial analysis
Industrial market
Industry
Industry analysis
Industrywide conditions
Information industry
Market capitalization
Real estate industry
Regulated industries
Risk assessment
Securities analysis
Securities markets
Tobacco industry
title Full-Information Industry Betas
url http://sfxeu10.hosted.exlibrisgroup.com/loughborough?ctx_ver=Z39.88-2004&ctx_enc=info:ofi/enc:UTF-8&ctx_tim=2025-01-07T16%3A52%3A43IST&url_ver=Z39.88-2004&url_ctx_fmt=infofi/fmt:kev:mtx:ctx&rfr_id=info:sid/primo.exlibrisgroup.com:primo3-Article-gale_proqu&rft_val_fmt=info:ofi/fmt:kev:mtx:journal&rft.genre=article&rft.atitle=Full-Information%20Industry%20Betas&rft.jtitle=Financial%20management&rft.au=Kaplan,%20Paul%20D.&rft.date=1998-07-01&rft.volume=27&rft.issue=2&rft.spage=85&rft.epage=93&rft.pages=85-93&rft.issn=0046-3892&rft.eissn=1755-053X&rft_id=info:doi/10.2307/3666295&rft_dat=%3Cgale_proqu%3EA21034077%3C/gale_proqu%3E%3Cgrp_id%3Ecdi_FETCH-LOGICAL-c337t-ad43f914c3e93057923ddc3825aaa779ecdc61a1ea8af6a74c63a5c8c9a38bfa3%3C/grp_id%3E%3Coa%3E%3C/oa%3E%3Curl%3E%3C/url%3E&rft_id=info:oai/&rft_pqid=1295129235&rft_id=info:pmid/&rft_galeid=A21034077&rft_jstor_id=3666295&rfr_iscdi=true