The Effect of Changes in Accounting Techniques on Systematic Risk

Market data are analyzed to determine if any relationship exists between selected changes in accounting techniques (CATs) and risk. Measurement of the risk pattern of securities for firms experiencing CATs entails the use of the market model proposed by Markowitz and extended by Sharpe. To analyze beta, the least squares regression from the model was computed for selected periods, using 37 monthly observations of an appropriate experimental sample of firms. The statistical tests suggest no significant pattern for all the CATs, but the data do indicate an upward trend for each of the portfolio betas over the time period of the analysis. This is evidence of fluctuations in beta for firms experiencing CATs. Investigation of a matched sample of firms without CATs also indicated an increase in beta over the period under analysis, so the phenomenon of increasing betas may have resulted from factors other than the specific CAT.