The Effect of Financial Variables on Systematic Risk in Six Industries in Thailand

Abstract

Risk is classified into two types which are systematic risk and unsystematic risk. Unsystematic risk is known as a diversifiable risk that can be avoided or managed. On the other hand, systematic risk is the market-related risk which cannot be controlled or diversified away. Between these two types of risks, the systematic risk becomes the major concern of firms and investors as this type of risk cannot be avoided or diversified away, but need to be strategized and managed accordingly. The purpose of this study is to examine the main factors influence on the behavior of systematic risk in six industries of Thailand, the period of study is 15 years from 2002 to 2016 and consist of 372 non-financial listed firms. This study employs the panel data analysis, comprising of the random effect model (REM), fixed effect model (FEM), and pool ordinary least square (POLS). The overall findings show some common financial variables such as financial leverage, liquidity, firm size, firm growth, and profitability are considered as the main factors affecting systematic risk in Thai consumer goods, technology, telecommunication, utilities, and health care. However, Thai consumer service is reported as an insignificant relationship between financial variables and systematic risk. Apart from financial variables, there is an impact of the financial crisis (2009) on systematic risk in all industries. Findings in this study extent in the finance literature on systematic risk, different internal industries may have different factors influencing the behavior of systematic risk.