The effects of key financial ratios on systematic risk

ERYİĞİT C., Eryigit M.

IKTISAT ISLETME VE FINANS, vol.24, no.281, pp.60-76, 2009 (SSCI) identifier

  • Publication Type: Article / Article
  • Volume: 24 Issue: 281
  • Publication Date: 2009
  • Doi Number: 10.3848/iif.2009.281.5117
  • Journal Indexes: Social Sciences Citation Index (SSCI)
  • Page Numbers: pp.60-76
  • Hacettepe University Affiliated: Yes


The effects of key financial ratios on systematic risk Risk, in financial terms, has been defined as the variation possibility in expected return by an investigator. Risk can be classified as nonsystematic risk and systematic risk. While nonsystematic risk can be eliminated by diversification and is firm specific, systematic risk is market driven. Thus, the risk of a well diversified portfolio is equal to systematic risk. This study investigates the effects of some key financial ratios on systematic risk. Stocks listed on Istanbul Stock Exchange during 1995-2005 are examined in the study. Five key financial ratios are employed in the model namely acid test ratio, debt to equity return on equity, asset turnover, and defensive interval measure, Panel regression analysis with corrected autocorrelation method of Cochrane-Orcutt AR(I) is conducted According to the results of the analysis asset turnover, defensive interval measure and acid test ratio significantly positively affect systematic risk.