Aswath Damodaran 157
The Accounting Beta for Bookscape
! Regressing the changes in profits at Bookscape against changes in profits for
the S&P 500 yields the following:
Bookscape Earnings Change Change = 0. 1003 + 0. 7329 (S & P 500 Earnings Change)
Based upon this regression, the beta for Bookscape’s equity is 0. 73.
! Using operating earnings for both the firm and the S&P 500 should yield the
equivalent of an unlevered beta.
The biggest problems with accounting betas are:
Earnings tend to be smoothed out
You will not have very many observations in your regression
