Levered and Unlevered Beta

IESE Business School
SSRN Electronic Journal 02/2003; DOI: 10.2139/ssrn.303170
Source: RePEc


We prove that in a world without leverage cost the relationship between the levered beta ( L) and the unlevered beta ( u) is the No-costs-of-leverage formula: L = u + ( u - d) D (1 - T) / E. We also analyze 6 alternative valuation theories proposed in the literature to estimate the relationship between the levered beta and the unlevered beta (Harris and Pringle (1985), Modigliani and Miller (1963), Damodaran (1994), Myers (1974), Miles and Ezzell (1980), and practitioners) and prove that all provide inconsistent results.

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Available from: Pablo Fernandez, Apr 13, 2015
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    ABSTRACT: This study analyzes the impacts of tax policy on market risk for the listed firms in the Viet Nam commercial electric industry as it becomes necessary. First, by using quantitative and analytical methods to estimate asset and equity beta of total 18 listed companies in Viet Nam commercial electric industry with a proper traditional model, we found out that the beta values, in general, for many companies are acceptable. Second, under 3 different scenarios of changing tax rates (20%, 25% and 28%), we recognized that there is not large disperse in equity beta values, estimated at 0,625, 0,626 and 0,627.These values are lower than those of the listed VN construction firms. Third, by changing tax rates in 3 scenarios (25%, 20% and 28%), we recognized equity /asset beta mean increase if tax rate increases from 20% to 25%, then goes up to 28%. Finally, this paper provides some outcomes that could provide companies and government more evidence in establishing their policies in governance.
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