Market beta coefficient and enterprise risk management: A literature review
Market beta coefficient and enterprise risk management: A literature review

Summary/Abstract: One of the significant factors in the valuation of publicly listed firms is their market beta coefficient, commonly utilised in the capital asset pricing model (CAPM) as a proxy for stock volatility directly affecting market value. This article’s primary purpose is to explore the theoretical basis for future empirical research into the relationship between the market beta coefficient and enter-prise risk management (ERM). The author explores academic lit-erature about various researched variables affecting the market beta coefficient in the context of the neoclassical capital asset pricing model, which was founded on the premise of an efficient market hypothesis. The review starts with the works of orthodox theorists and moves on to the works of less orthodox ones who argue that neoclassical models might be flawed due to inherent market inefficiencies. Next, the article takes us to the works of proponents of radical theorems of a world of multidimensional risk and return relationships clashing outright with neoclassical views. Lastly, the author explores a relatively new and evolving modern ERM practice as a potential endogenous and idiosyn-cratic variable of indirect influence on a forward-looking market beta and its impact on the firm’s value, from a somewhat novel angle in the CAPM controversy. The review identifies gaps in the literature about a specific cause-and-effect relationship between ERM and the market beta coefficient. This paper adds to the lit-erature by exploring controversies surrounding the market beta coefficient and ERM viewpoints disparity and bridging the two subject matters with the aim of further research study

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