The Association between Accounting Determined and Market Determined Measures of Risk: Evidences from Indian Pharmaceutical Industry

This paper attempts to identify how far the accounting determined risk measures of the firm as estimated by the ‘degree operating leverage’ and ‘degree of financial leverage’, explain its market determined systematic risk as denoted by ‘Beta’. Put in other way, in this study the empirical question of ‘the impact of different cost categories on total systematic risk’ is sought to be answered. Besides the study would also test out whether relying on accounting data as a part of fundamental analysis while determining risk and reward expectations is justifiable. In that sense the study also tries to ascertain the efficiency of capital market in reflecting the systematic risk assumed by the firm.