Beta and Growth∗

Antonio E. Bernardo†
Bhagwan Chowdhry‡
Amit Goyal§

August 15, 2004

Abstract

In this paper, we decompose empirically the beta for assets-in-place and the
beta for growth opportunities within an industry. Our empirical results demon-
strate that the beta of growth opportunities is greater than the beta for assets-in-
place for virtually all industries over all periods of time dating back to 1978. The
difference has important implications for determining the project cost of capital.
For example, when choosing comparables to determine project beta one should
match the growth opportunities of the project with those of the comparable firm.
Assuming a 6% market equity risk premium, accounting for growth opportunities
alters the project cost of capital by as much as 2 to 3%.

∗
Preliminary and incomplete.
†
Corresponding author: UCLA Anderson School, Los Angeles, CA 90095-1481, USA. ph: (310)
825-2198. e-mail: abernard@anderson.ucla.edu
‡
UCLA Anderson School, Los Angeles, CA 90095-1481, USA.
§
Goizueta Business School, Emory University
1 Introduction

Despite theoretical and empirical arguments against its use, the single-period Capital
Asset Pricing Model (CAPM) remains the most popular method for determining the
cost of equity capital for investment projects (Graham and Harvey, 2001). One reason
for this is its simplicity. Modern alternatives based on specifications of the stochastic
discount factor or intertemporal versions of the CAPM require inputs that are difficult
to observe or estimate (e.g., Brennan and Xia, 2003; Ang and Liu, 2004; and Lettau and
Wachter, 2004). For example, to employ the ICAPM one must specify both the state
variables relevant for characterizing the investment opportunity set and their associated
risk premia. By contrast, the CAPM requires only estimates of the risk-free rate, the
risk premium on the market portfolio, and the asset’s beta.

One difficulty implementing the CAPM is that investment projects are not traded
securities and thus do not have directly observable betas. The standard practice for
dealing with this problem is to infer the project beta from a set of comparable traded
securities, typically equity betas for firms in the same industry. Standard textbook
treatments argue further that comparables should have similar cylicality and operating
leverage and that the effect of financial leverage on equity betas should be factored into
the determination of project beta (e.g., Brealey and Myers, 2003). In this paper, we
demonstrate empirically that growth opportunities are a very important determinant of
a firm’s beta and the failure to account for this can lead to misestimation of the cost of
equity capital by as much as 3% depending on the industry.

There are good reasons to expect that, all else equal, firm’s with more growth op-
portunities have higher betas. First, a firm’s growth opportunities typically include
embedded options such as the option to delay, abandon, or expand a project. These
decisions depend on information about cash flows upon project completion which have a
systematic risk component. Since these embedded options have implicit leverage the sys-
tematic risk of growth opportunities may be higher than similar assets already in place
(Berk, Green, and Naik, 1999 and 2004). Second, Campbell and Wei (1993) demon-

1
strated empirically that betas are largely attributable to common variation in expected
returns. Since firms with more growth opportunities have cash flows with longer dura-
tion their values are more sensitive to changes in discount rates and thus should have
higher betas (see, e.g., Cornell, 1999; Dechow, Sloan, and Soliman, 2002).

Our goal in this paper is to demonstrate empirically the link between a firm’s growth
opportunities and its beta and to provide simple rules for choosing project beta based
on our results. Our empirical framework is very simple. The value of a firm can be
separated into the value of assets-in-place and growth opportunities, thus a firm’s beta
is simply a value-weighted average of the betas of each. We make two assumptions to
disentangle the betas of assets-in-place and of growth opportunities from the data. First,
we assume that a firm’s book-to-market ratio is a good proxy for the ratio of the value
of assets-in-place to the total value of the firm.1 Second, we assume that the beta of
assets-in-place and the beta of growth opportunities are constant for all firms within an
industry at a given time. Thus, we assume that the variation in firm betas within an
industry at a moment in time is explained completely by the relative proportion of the
value of assets-in-place to growth opportunities.2

Our empirical results are striking. In all but one of 36 industry classifications (ex-
cluding financials, miscellaneous, etc. from the Fama-French 48-industry classification)
the difference between the beta of growth opportunities and the beta of assets-in-place
is positive and statistically significant. The difference in betas can be substantial. For
example, in fast-growing industries such as Computers, Medical Equipment, and Phar-
maceutical Products the difference is 0.549, 0.694, and 0.0.548, respectively. To translate
these differences into betas for projects with below, typical, or above-average growth op-
portunities we measure unlevered firm betas at the 25th, 50th, and 75th percentile
book-to-market ratios for the industry. We summarize our findings by constructing a
table of unlevered betas for each industry depending on whether the duration of an
1
We also check for robustness by estimating the value of assets-in-place by assuming that they
generate a level perpetuity at the current levels of earnings (also cash flows).
2
To potentially improve our beta estimates, we also experiment with the assumption that these betas
are constant over time intervals of 3 and 5 years.

2
investment project’s cash flows are typical, above, or below the industry average. For
example, in the period 1998-2002, the unlevered beta estimate for a project with above
(below) average growth opportunities in the Computer industry is 1.520 (1.172) which
suggests that a 100% equity financed project with above-average growth opportunities in
the Computer industry should have a cost of equity capital roughly 2% per year higher
than a project with below-average growth opportunities (assuming a 6% market risk
premium).

For the purposes of applying the CAPM to investment projects this suggests some
important rules of thumb. For example, rolling out a retail outlet in a new market with
numerous options to expand should have a higher cost of capital than opening a new
outlet in a mature, highly competitive market. When choosing comparables to estimate
project beta, a high-growth retailer is a better choice in the former case whereas a
low-growth retailer is a better choice in the latter case.

There are a few different ways of implementing this in practice. First, when choosing
a comparable firm from a set of firms that are traded, one could choose firms based on
their book to market ratio. For a high-growth retailer, the comparable firm, from the
same industry, would be one with low book to market ratio and vice versa.3 Second, the
duration of a firm’s cash flows is likely to be related to its book to market ratio. A high
growth firm will have a low book to market ratio and at the same time the duration
of its cash flows is also likely to be high. So, for projects with low duration of cash
flows, the appropriate project beta should be estimated by computing unlevered beta of
a firm in the industry that has a low book to market ratio or a low cash flow duration.
3
The following example for Computers industry illustrates this idea. Consider two firms: Firm A
(Cognex Corp., ticker CGNX), Firm B (Intergraph Corp., ticker INGR). Both firms are similar size
(market capitalization of $785.6 and $819.8 million respectively. Both firms have no leverage. Standard
textbook prescription of finding companies in same industry, of same size, and same financial structure
applies here. Yet the betas are very different. Firm A beta is 2.00 while Firm B beta is 0.80 (all
numbers are for 2002). Which beta should one choose? We suggest that we look at growth options
proxied by B/M. B/M for firm A is 0.451 while it is 0.758 for firm B. Thus firm B has fewer growth
options/opportunities while firm A has more.

3
Since there is a lot of noise in estimated betas for individual firms, many scholars have
suggested using industry betas for all firms in the industry. We refine this suggestion by
computing three betas for each industry, mean unlevered beta of firms with low book
to market ratios, mean unlevered beta of all firms in the industry (the industry cost
of capital) and mean unlevered beta of firms with high book to market ratios; projects
with low, medium and high cash flow duration (or growth opportunities) can be assigned
these three betas respectively.

One further implication of our analysis is the firm’s own beta may not always be a
good measure of the systematic risk of one of its investment projects, even if it is in the
same line of business, if the firm has relatively more or less growth opportunities than
the project. For example, the beta of a pharmaceutical company with numerous drugs
on the market is not a good estimate of the beta of one of its R&D projects. A better
comparable for the beta of the R&D project is the beta of a pharmaceutical company
which derives most of its value from drugs at an early stage of development which is
likely to be higher than the firm’s own beta. Similarly, the beta of the company, say
Amgen, is also not a good estimate of the beta of one of its division which has a proven
drug that is already generating significant cash flows, say the division that is producing
Epogen for Amgen. The beta of this division should be smaller and if the firm beta is
used to discount its cash flows, it is likely to underestimate the value of the division.
This can be important if the firm is trying to divest the division with significant cash
flows.

We can also use our method to determine the discount rate for startup firms. This is
a particularly vexing problem in valuations because the usual difficulty in finding com-
parables is exacerbated for startups. Ignoring the issue of startups being fundamentally
different from public firms, we can consider a startup as a firm with no assets-in-place but
only growth options. Our method estimates the beta of growth options for the industry
and this can be used to discount projected cash flows for a startup in the industry.

4
2 Data and Empirical Framework

To illustrate the impact of the firm’s growth opportunities on beta we can decompose
the value of firm i at time t into two components: the value of assets-in-place, Ai,t , and
the present value of growth opportunities, Gi,t :

Vi,t = Ai,t + Gi,t .

Firm beta is then simply a weighted average of the beta of assets-in-place and the beta
of growth opportunities:
à !
Ai,t A Ai,t G
βi,t = βi,t + 1 − βi,t .
Vi,t Vi,t

To operationalize this decomposition, we’ll use two common textbook definitions to

identify the value of assets-in-place. First, we’ll assume that the ratio of the value of
Ai,t
assets-in-place to the total value of the firm, Vi,t
, is proxied by the ratio of the book
value of long-term outstanding debt (Compustat data item 9) plus book value of common
equity (Compustat data item 60) to the book value of debt plus the market value of
equity of firm i at time t. Second, we’ll assume that the assets-in-place generate a level
Ci,t
perpetuity of cash flows so that the value of assets-in-place is given by Ai,t = ri
where
Ci,t is the cash flows of firm i at date t and ri is the firm’s discount rate.4 An important
issue that arises in both methods is that the value of assets-in-place may exceed the
total value of the firm in which case the value of growth opportunities is negative. This
possibility is reasonable if, for example, the firm’s cash flows are expected to decline
over time (e.g., tobacco industry); however, this possibility is unreasonable if growth
opportunities reflect the option to expand in which case the value of growth opportunities
is bounded below by zero; for robustness, we provide results with and without censoring
the value of assets-in-place.

To provide more robust estimates of the beta of assets-in-place and the beta of
growth opportunities we assume that these betas are the same for all firms in the same
4
For robustness, we use both the firm’s cash flows and its earnings in the numerator.

5
industry. This implies that variation in firm beta within an industry is determined by
variation in the proportion of the value of assets-in-place to the total value of the firm.
Although there are good reasons to believe that there is variation in the betas of assets-in-
place and growth opportunities (e.g., life-cycle considerations), this variation is relatively
small thus the cost of making this assumption is small compared to the benefits from
reducing estimation error via aggregation. Firms are assigned to industries by taking
their primary 4-digit SIC code and sorting according to the Fama and French (1997)
48-industry classification. We also experiment with fixing the betas of assets-in-place
and growth opportunities for a given industry over different time periods, e.g., 5, 10 and
25 years. Our empirical results are very similar over all of these horizons. To summarize,
A
we assume that βi,t = β A and βi,t
G
= β G for all firms i in the same industry for time
periods of 5, 10 and 25 years.

With these assumptions we have the following relation:

Ai,t
βi,t = β G − (β G − β A ) , (1)
Vi,t
for all firms i in a given industry over time intervals of 5, 10 and 25 years. The βi,t is the
firm’s unlevered beta which is obtained by (i) computing the firm’s equity beta based
on one-factor market model using a five-year rolling window (three-year minimum) and
updated annually and (ii) unlevering the equity beta using the formula:
E
βi,t
βi,t = ,
1 + (1 − τ )Di,t /Ei,t
E
where βi,t is the equity beta of firm i at time t, τ is the tax rate (assumed to be 33 percent
for the entire sample period), and Di,t /Ei,t is the ratio of long-term debt (Compustat
data item 9) to market value of equity for firm i at time t. We use a firm’s market value
of equity at the end of December to calculate leverage and book-to-market ratio. We
also winsorize the data by setting the smallest and largest 0.5% of observations to the
next largest or smallest value of these ratios.

One way to estimate β G and β A would be to estimate the intercept and the slope
using the following regression:
Ai,t
β̂i,t = β G − (β G − β A ) + ²i,t , (2)
Vi,t

6
where ²i,t represents the measurement error in the estimate of βi,t . However, we do
Ai,t
not run regression (2). This is because our regressor Vi,t
is measured with error when
it is proxied by book to market ratio as described above. We therefore construct two
portfolios of firms based on their book-to-market values. We then compute (equal-
weighted) means of the book-to-market and unlevered beta for these two portfolios.
The ‘regression’ line is then just a straight line that connects these two points and gives
us the intercept and slope coefficients.

Our empirical implementation is agnostic about the source of the difference between
the beta of assets in place and the beta of growth opportunities. On one hand, Campbell
and Mei (1993) demonstrated empirically that betas are largely attributable to common
variation in expected returns. Following Campbell and Mei, Cornell (1999) argues that
the beta of pharmaceutical companies such as Amgen are too large to be explained by
the systematic risk of their cash flows. Dechow, Sloan, and Soliman (2002) also argue
that common variation in expected returns helps to explain the positive relation between
a firm’s equity beta and its estimated duration. On the other hand, Berk, Green, and
Naik (1999, 2004) argue that the systematic risk of an option to invest may be greater
than the systematic risk of the cash flows of a project already in place because the
embedded option has implied leverage. Either or both arguments may be at work in
our empirical framework; regardless, the implications of the knowledge that βG > βA for
capital budgeting at a company such as Amgen is that the systematic risk of an R&D
project is greater when it is earlier in its life cycle. Our goal is to provide quantitative
support for this hypothesis and practical guidance for the choice of discount rate.

Finally, our empirical analysis covers the period 1978 to 2002. The start date is 1978
because book value of common equity (Compustat data item 60) is not available before
1978 for stocks traded on NASDAQ.

7
3 Empirical Results

Table 1 provides estimates of industry (asset) betas over the 5, 10, 20 and 25 year periods
for each of the Fama-French 48-industry classifications. We report the mean unlevered
beta as well as the unlevered beta for firms with 25th percentile market-to-book (Q1)
and 75th percentile market-to-book (Q3) for that industry. In almost all periods and all
industries, firms with above-average growth opportunities (high market to book ratios)
have higher unlevered betas than firms with below-average growth opportunities (low
market to book ratios). The data strongly supports our hypothesis that the beta of
growth opportunities exceeds the beta of assets-in-place. To get a sense of the importance
for practical capital budgeting problems, consider the Computer industry. For the period
1998-2002, the mean unlevered firm beta in this industry is 1.346; however, a firm at
the 25th percentile in market-to-book has an unlevered beta of 1.172 while a firm at
the 75th percentile in market-to-book has an unlevered beta of 1.520. This difference in
beta of 0.348 represents a roughly 2% higher cost of capital for a project with relatively
high growth opportunities relative to a project with relatively low growth opportunities
(when using a 6% market equity risk premium).5

Table 2 provides estimates of asset betas, growth betas and the difference between
the growth and asset betas for all industries averaged over a period of 5, 10, 20 and 25
A
years with the assumption that βi,t = β A and βi,t
G
= β G for all firms i in the same industry
5
One might wonder why we get a negative relation between firm beta and firm B/M, while Fama
and French (1992) find essentially no relation between equity beta and equity B/M. There are three
reasons. First, we have detected a negative relation between unlevered beta and firm B/M whereas
Fama and French examine the relation between equity beta and equity B/M. If there were no relation
between equity beta and equity B/M, unlevering might produce a negative relation between unlevered
beta and asset B/M because market leverage and B/M are negatively correlated. However, this is not
the entire story. Whereas Fama and French examine the correlation between individual equity betas
and individual equity B/M, we on the other hand construct equally weighted portfolios which minimizes
estimation errors. We detected a negative relation between equity betas and B/M as well when we used
portfolios. Finally, our results are sorted by industries whereas Fama and French throw all industries
together which, perhaps, further muddles up the relation between betas and B/M.

8
for these periods. In all but one industry, Precious Metals, we see that βG > βA .6 The
difference is as high as 1.129 for the Personal Services industry for the 25 year period
which implies that the cost of capital difference between a startup in that industry and
a mature firm with no growth options could be as high as 7%.

6
The differences in mean growth betas and mean asset betas over the 25 year period are statistically
significant for most industries; we have not reported the test statistics for brevity.

9
References

[1] Ang, Andrew and Jun Liu, 2004, “How to Discount Cashflows with Time-Varying
Expected Returns,” forthcoming Journal of Finance.

[2] Berk, Jonathan, Richard Green, and Vasant Naik, 1999, “Optimal Investment,
Growth Options, and Security Returns,” Journal of Finance 54, 1553-1607.

[3] Berk, Jonathan, Richard Green, and Vasant Naik, 2004, “Valuation and Return
Dynamics of New Ventures,” Review of Financial Studies 17, 1-35.

[4] Brealey, Richard A. and Stewart C. Myers, 2003. Principles of Corporate Finance.
McGraw-Hill Irwin, New York.

[5] Brennan, Michael J. and Yihong Xia, 2003, “Risk and Valuation under an Intertem-
poral Capital Asset Pricing Model,” Working Paper: UCLA.

[6] Campbell, John Y. and Jiangping Mei, 1993, “Where do Betas Come From? Asset
Price Dynamics and the Sources of Systematic Risk,” Review of Financial Studies
6, 567-592.

[7] Campbell, John Y. and Tuomo Vuolteenaho, 2003, “Bad Beta, Good Beta,” Work-
ing Paper: Harvard University.

[8] Cornell, Bradford, 1999, “Risk, Duration, and Capital Budgeting: New Evidence
on Some Old Questions,” Journal of Business 72, 183-200.

[9] Dechow, Patricia M., Richard G. Sloan, and Mark T. Soliman, 2002, “Implied
Equity Duration: A New Measure of Equity Risk,” Working Paper: University of
Michigan.

[10] Fama, Eugene F. and Kenneth R. French, 1992, “The Cross-Section of Expected
Stock Returns,” Journal of Finance 47, 427-465.

[11] Fama, Eugene F. and Kenneth R. French, 1997, “Industry Costs of Equity,” Journal
of Financial Economics ???

10
[12] Graham, John R. and Campbell R. Harvey, 2001, “The Theory and Practice of
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[13] Lanstein, Ronald and William F. Sharpe, 1978, “Duration and Security Risk,”
Journal of Financial and Quantitative Analysis November, 653-668.

[14] Lettau, Martin and Jessica A. Wachter, 2004, “Why is long-horizon equity less risk?
A duration-based explanation of the value premium,” Working Paper: New York
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[15] Santos, Tano and Pietro Veronesi, 2004, “Conditional Betas,” Working Paper:
Columbia University.

11
 Table 1: Averages of Firm Betas
Averages of firm betas.

Panel A

Industry 1978-1982 1983-1987 1988-1992

Q1 Mean Q3 Q1 Mean Q3 Q1 Mean Q3

Food Products 0.602 0.651 0.699 0.570 0.594 0.618 0.648 0.750 0.852
Recreation 0.883 0.992 1.096 0.663 0.804 0.941 0.781 0.890 0.996
Entertainment 0.665 0.839 1.006 0.728 0.902 1.073 0.659 0.789 0.916
Printing and Publishing 0.744 0.839 0.930 0.614 0.785 0.950 0.724 0.801 0.876
Consumer Goods 0.870 0.959 1.047 0.742 0.854 0.966 0.740 0.835 0.929
Apparel 0.808 0.848 0.888 0.657 0.792 0.924 0.704 0.821 0.935
Health Care 0.677 0.977 1.263 1.053 1.187 1.319 0.878 1.081 1.281
Medical Equipment 1.075 1.206 1.333 0.922 1.122 1.317 0.896 1.026 1.156
Pharmaceutical Products 0.943 1.000 1.055 0.934 1.064 1.189 1.113 1.166 1.219
Chemicals 0.753 0.925 1.094 0.783 0.889 0.993 0.752 0.945 1.137
Rubber and Plastic Products 0.715 0.888 1.058 0.771 1.004 1.231 0.729 0.793 0.855
Textiles 0.700 0.797 0.892 0.659 0.759 0.860 0.684 0.795 0.903
Construction Materials 0.832 0.986 1.140 0.761 0.923 1.084 0.640 0.772 0.902
Construction 0.910 0.991 1.072 0.866 1.056 1.239 0.598 0.809 1.016
Steel Works Etc 0.643 0.799 0.952 0.728 0.816 0.902 0.708 0.812 0.914
Fabricated Products 0.707 0.914 1.113 0.566 0.693 0.816 0.522 0.637 0.753
Machinery 0.781 0.966 1.149 0.746 0.855 0.964 0.737 0.876 1.014
Electrical Equipment 0.998 1.166 1.331 0.961 1.090 1.216 0.762 0.876 0.989
Automobiles and Trucks 0.801 0.942 1.079 0.755 0.923 1.088 0.742 0.844 0.945
Aircraft 1.106 1.332 1.552 1.025 1.079 1.130 0.649 0.695 0.739
Precious Metals – – – 0.587 0.616 0.645 0.295 0.264 0.234
Metal Mining 0.941 1.155 1.368 0.840 1.001 1.158 0.686 0.701 0.717
Petroleum and Natural Gas 0.963 1.150 1.334 0.709 0.829 0.949 0.503 0.594 0.685
Utilities 0.263 0.340 0.415 0.265 0.297 0.329 0.285 0.316 0.346
Communication 0.530 0.876 1.212 0.593 0.867 1.138 0.661 0.805 0.947
Personal Services 0.645 0.795 0.940 0.638 0.851 1.060 0.646 0.778 0.902
Business Services 0.865 1.073 1.282 0.956 1.126 1.295 0.776 0.951 1.125
Computers 1.307 1.459 1.610 1.306 1.381 1.455 1.033 1.113 1.193
Electronic Equipment 1.198 1.347 1.494 1.138 1.219 1.299 0.948 1.048 1.148
Measuring/Control Equipment 1.078 1.281 1.484 0.993 1.180 1.364 0.781 0.892 1.002
Business Supplies 0.758 0.842 0.924 0.765 0.850 0.934 0.657 0.764 0.868
Shipping Containers 0.687 0.795 0.900 0.718 0.797 0.873 0.667 0.802 0.935
Transportation 0.540 0.669 0.796 0.557 0.703 0.846 0.604 0.769 0.931
Wholesale 0.705 0.819 0.933 0.662 0.844 1.025 0.682 0.825 0.968
Retail 0.646 0.772 0.897 0.601 0.791 0.980 0.700 0.906 1.111
Restaurants, Hotels, Motels 0.727 0.868 1.005 0.598 0.751 0.902 0.552 0.740 0.926

12
 Panel B

Industry 1993-1997 1998-2002 1983-1992

Q1 Mean Q3 Q1 Mean Q3 Q1 Mean Q3

Food Products 0.593 0.645 0.697 0.392 0.447 0.501 0.609 0.672 0.735
Recreation 0.599 0.751 0.900 0.658 0.747 0.834 0.722 0.847 0.968
Entertainment 0.430 0.620 0.808 0.616 0.771 0.925 0.694 0.845 0.995
Printing and Publishing 0.611 0.664 0.716 0.551 0.633 0.713 0.669 0.793 0.913
Consumer Goods 0.597 0.730 0.862 0.583 0.682 0.780 0.741 0.845 0.947
Apparel 0.487 0.662 0.835 0.542 0.621 0.699 0.680 0.807 0.930
Health Care 0.929 1.087 1.243 0.645 0.758 0.870 0.966 1.134 1.300
Medical Equipment 0.944 1.081 1.217 0.741 0.905 1.067 0.909 1.074 1.236
Pharmaceutical Products 1.404 1.467 1.528 1.172 1.275 1.377 1.023 1.115 1.204
Chemicals 0.707 0.764 0.821 0.550 0.625 0.699 0.768 0.917 1.065
Rubber and Plastic Products 0.584 0.721 0.857 0.420 0.512 0.604 0.750 0.899 1.043
Textiles 0.466 0.653 0.829 0.279 0.350 0.420 0.672 0.777 0.881
Construction Materials 0.514 0.751 0.986 0.490 0.602 0.711 0.700 0.847 0.993
Construction 0.517 0.711 0.902 0.473 0.594 0.713 0.732 0.932 1.127
Steel Works Etc 0.644 0.831 1.017 0.537 0.663 0.787 0.718 0.814 0.908
Fabricated Products 0.642 0.903 1.164 – – – 0.558 0.682 0.803
Machinery 0.637 0.820 1.004 0.646 0.797 0.946 0.742 0.866 0.989
Electrical Equipment 0.887 1.068 1.247 1.075 1.249 1.423 0.861 0.983 1.103
Automobiles and Trucks 0.693 0.852 1.009 0.505 0.601 0.694 0.749 0.883 1.016
Aircraft 0.511 0.614 0.713 – – – 0.837 0.887 0.934
Precious Metals 0.324 0.225 0.128 0.411 0.648 0.868 0.379 0.364 0.352
Metal Mining 0.600 0.635 0.666 0.670 0.828 0.985 0.763 0.851 0.937
Petroleum and Natural Gas 0.380 0.490 0.599 0.489 0.601 0.713 0.606 0.712 0.817
Utilities 0.302 0.324 0.346 0.146 0.154 0.162 0.275 0.307 0.338
Communication 0.802 0.880 0.957 0.877 1.017 1.156 0.627 0.836 1.043
Personal Services 0.611 0.647 0.682 0.609 0.736 0.859 0.642 0.815 0.981
Business Services 0.788 0.997 1.206 1.125 1.367 1.610 0.866 1.038 1.210
Computers 1.142 1.270 1.396 1.172 1.346 1.520 1.169 1.247 1.324
Electronic Equipment 0.981 1.156 1.330 1.210 1.463 1.715 1.043 1.133 1.223
Measuring/Control Equipment 0.747 0.943 1.136 1.085 1.225 1.364 0.887 1.036 1.183
Business Supplies 0.621 0.622 0.623 0.450 0.533 0.614 0.711 0.807 0.901
Shipping Containers – – – – – – 0.692 0.800 0.904
Transportation 0.511 0.778 1.041 0.408 0.575 0.739 0.580 0.736 0.889
Wholesale 0.662 0.815 0.967 0.672 0.796 0.921 0.672 0.835 0.996
Retail 0.655 0.814 0.971 0.640 0.809 0.978 0.651 0.849 1.045
Restaurants, Hotels, Motels 0.640 0.796 0.951 0.389 0.468 0.547 0.575 0.746 0.914

13
 Panel C

Industry 1993-2002 1988-2002 1978-2002

Q1 Mean Q3 Q1 Mean Q3 Q1 Mean Q3

Food Products 0.493 0.546 0.599 0.545 0.614 0.683 0.561 0.617 0.673
Recreation 0.629 0.749 0.867 0.679 0.796 0.910 0.717 0.837 0.953
Entertainment 0.523 0.695 0.866 0.569 0.727 0.883 0.620 0.784 0.946
Printing and Publishing 0.581 0.648 0.715 0.629 0.699 0.768 0.649 0.744 0.837
Consumer Goods 0.590 0.706 0.821 0.640 0.749 0.857 0.706 0.812 0.917
Apparel 0.514 0.642 0.767 0.578 0.701 0.823 0.640 0.749 0.856
Health Care 0.787 0.922 1.057 0.817 0.975 1.132 0.836 1.018 1.195
Medical Equipment 0.843 0.993 1.142 0.860 1.004 1.147 0.915 1.068 1.218
Pharmaceutical Products 1.288 1.371 1.453 1.230 1.303 1.375 1.113 1.194 1.273
Chemicals 0.629 0.695 0.760 0.670 0.778 0.885 0.709 0.830 0.949
Rubber and Plastic Products 0.502 0.616 0.730 0.578 0.675 0.772 0.644 0.784 0.921
Textiles 0.372 0.501 0.624 0.476 0.599 0.717 0.558 0.671 0.781
Construction Materials 0.502 0.676 0.849 0.548 0.708 0.866 0.647 0.806 0.964
Construction 0.495 0.653 0.807 0.529 0.705 0.877 0.673 0.832 0.988
Steel Works Etc 0.590 0.747 0.902 0.630 0.768 0.906 0.652 0.784 0.914
Fabricated Products 0.642 0.903 1.164 0.582 0.770 0.958 0.633 0.807 0.977
Machinery 0.641 0.808 0.975 0.673 0.831 0.988 0.709 0.863 1.015
Electrical Equipment 0.981 1.158 1.335 0.908 1.064 1.220 0.936 1.090 1.241
Automobiles and Trucks 0.599 0.727 0.852 0.647 0.766 0.883 0.700 0.832 0.963
Aircraft 0.511 0.614 0.713 0.580 0.654 0.726 0.823 0.930 1.033
Precious Metals 0.349 0.345 0.340 0.327 0.311 0.296 0.364 0.355 0.346
Metal Mining 0.620 0.690 0.758 0.648 0.695 0.741 0.758 0.869 0.978
Petroleum and Natural Gas 0.435 0.546 0.656 0.457 0.562 0.666 0.609 0.733 0.856
Utilities 0.224 0.239 0.254 0.244 0.265 0.285 0.252 0.286 0.320
Communication 0.840 0.948 1.056 0.780 0.901 1.020 0.693 0.889 1.082
Personal Services 0.610 0.691 0.770 0.622 0.720 0.814 0.630 0.761 0.889
Business Services 0.957 1.182 1.408 0.896 1.105 1.314 0.902 1.103 1.303
Computers 1.157 1.308 1.458 1.116 1.243 1.370 1.192 1.314 1.435
Electronic Equipment 1.096 1.310 1.523 1.046 1.222 1.398 1.095 1.246 1.397
Measuring/Control Equipment 0.916 1.084 1.250 0.871 1.020 1.167 0.937 1.104 1.270
Business Supplies 0.535 0.577 0.618 0.576 0.639 0.702 0.650 0.722 0.793
Shipping Containers – – – 0.667 0.802 0.935 0.691 0.798 0.903
Transportation 0.459 0.676 0.890 0.508 0.707 0.904 0.524 0.699 0.871
Wholesale 0.667 0.806 0.944 0.672 0.812 0.952 0.676 0.820 0.963
Retail 0.647 0.811 0.975 0.665 0.843 1.020 0.648 0.818 0.987
Restaurants, Hotels, Motels 0.514 0.632 0.749 0.527 0.668 0.808 0.581 0.725 0.866

14
 Table 2: Averages of Asset and Growth Betas
Averages of asset and growth betas.

Panel A

Industry 1978-1982 1983-1987 1988-1992

Asset Growth Diff Asset Growth Diff Asset Growth Diff

Food Products 0.667 0.849 0.182 0.555 0.639 0.084 0.570 1.004 0.434
Recreation 1.023 1.335 0.311 0.657 1.253 0.596 0.816 1.239 0.423
Entertainment 0.765 1.403 0.638 0.357 1.886 1.529 0.574 1.127 0.553
Printing and Publishing 0.749 1.148 0.399 0.340 1.297 0.957 0.591 1.036 0.445
Consumer Goods 0.935 1.228 0.292 0.694 1.219 0.525 0.703 1.112 0.409
Apparel 0.869 0.970 0.101 0.718 1.212 0.494 0.760 1.097 0.338
Health Care 0.376 2.489 2.113 0.884 1.546 0.661 0.698 1.479 0.780
Medical Equipment 1.084 1.520 0.436 0.695 1.686 0.991 0.706 1.293 0.587
Pharmaceutical Products 0.883 1.162 0.279 0.491 1.500 1.009 1.006 1.277 0.270
Chemicals 0.870 1.611 0.742 0.674 1.308 0.635 0.467 1.717 1.249
Rubber and Plastic Products 0.968 1.456 0.488 0.747 1.574 0.827 0.716 0.916 0.199
Textiles 0.973 1.389 0.416 0.742 1.267 0.525 0.730 1.256 0.526
Construction Materials 0.984 1.593 0.609 0.764 1.563 0.799 0.673 1.118 0.445
Construction 0.979 1.402 0.422 0.885 1.870 0.984 0.676 1.732 1.056
Steel Works Etc 0.947 1.503 0.556 0.803 1.252 0.449 0.718 1.126 0.408
Fabricated Products 0.999 1.795 0.796 0.678 1.221 0.543 0.510 0.947 0.436
Machinery 0.961 1.643 0.682 0.744 1.261 0.516 0.706 1.430 0.723
Electrical Equipment 1.049 1.605 0.556 0.852 1.445 0.593 0.693 1.216 0.522
Automobiles and Trucks 1.042 1.539 0.497 0.823 1.616 0.793 0.767 1.264 0.497
Aircraft 1.098 2.142 1.044 1.001 1.300 0.299 0.692 0.848 0.156
Precious Metals – – – 0.509 0.674 0.165 0.388 0.184 -0.204
Metal Mining 0.968 1.871 0.903 0.883 1.402 0.519 0.704 0.710 0.006
Petroleum and Natural Gas 0.898 1.765 0.867 0.744 1.374 0.630 0.447 1.038 0.590
Utilities 0.401 1.276 0.875 0.292 0.674 0.382 0.252 0.628 0.376
Communication 0.637 1.976 1.339 0.271 1.927 1.656 0.278 1.411 1.133
Personal Services 0.777 1.181 0.403 0.632 1.376 0.743 0.595 1.075 0.479
Business Services 0.885 1.626 0.741 0.832 1.478 0.645 0.700 1.311 0.611
Computers 1.210 1.859 0.649 1.258 1.570 0.312 0.991 1.379 0.388
Electronic Equipment 1.218 1.749 0.530 1.091 1.444 0.353 0.971 1.356 0.385
Measuring/Control Equipment 1.047 1.816 0.769 0.833 1.779 0.946 0.745 1.297 0.552
Business Supplies 0.844 1.233 0.389 0.715 1.214 0.499 0.603 1.262 0.659
Shipping Containers 0.784 1.096 0.311 0.649 1.061 0.412 0.607 1.170 0.564
Transportation 0.699 1.316 0.617 0.583 1.448 0.865 0.572 1.439 0.866
Wholesale 0.824 1.192 0.368 0.656 1.392 0.736 0.668 1.227 0.559
Retail 0.810 1.324 0.514 0.530 1.373 0.843 0.651 1.399 0.748
Restaurants, Hotels, Motels 0.757 1.492 0.735 0.501 1.300 0.799 0.413 1.361 0.948

15
 Panel B

Industry 1993-1997 1998-2002 1983-1992

Asset Growth Diff Asset Growth Diff Asset Growth Diff

Food Products 0.558 0.751 0.192 0.361 0.544 0.183 0.563 0.822 0.259
Recreation 0.620 1.051 0.431 0.703 1.006 0.302 0.736 1.246 0.509
Entertainment 0.323 1.134 0.811 0.493 1.228 0.735 0.466 1.507 1.041
Printing and Publishing 0.431 0.837 0.405 0.411 0.839 0.428 0.466 1.167 0.701
Consumer Goods 0.389 1.115 0.726 0.553 0.835 0.282 0.699 1.166 0.467
Apparel 0.472 1.241 0.770 0.570 0.783 0.212 0.739 1.155 0.416
Health Care 0.659 1.613 0.955 0.519 1.127 0.608 0.791 1.512 0.721
Medical Equipment 0.629 1.366 0.737 0.467 1.187 0.719 0.700 1.490 0.789
Pharmaceutical Products 1.067 1.586 0.519 0.778 1.441 0.663 0.749 1.388 0.639
Chemicals 0.551 0.980 0.429 0.485 0.843 0.358 0.571 1.513 0.942
Rubber and Plastic Products 0.480 1.050 0.570 0.395 0.809 0.414 0.732 1.245 0.513
Textiles 0.416 1.300 0.884 0.342 0.553 0.211 0.736 1.262 0.526
Construction Materials 0.371 1.298 0.927 0.462 0.842 0.380 0.719 1.341 0.622
Construction 0.569 1.494 0.925 0.541 1.064 0.523 0.781 1.801 1.020
Steel Works Etc 0.549 1.550 1.001 0.627 0.994 0.366 0.760 1.189 0.429
Fabricated Products 0.493 2.145 1.652 – – – 0.645 1.167 0.522
Machinery 0.393 1.469 1.076 0.605 1.191 0.586 0.725 1.345 0.620
Electrical Equipment 0.564 1.546 0.982 0.869 1.579 0.710 0.772 1.330 0.558
Automobiles and Trucks 0.493 1.455 0.963 0.348 1.198 0.850 0.795 1.440 0.645
Aircraft 0.397 1.069 0.672 – – – 0.846 1.074 0.228
Precious Metals 0.516 -0.011 -0.526 0.424 1.230 0.807 0.422 0.324 -0.099
Metal Mining 0.598 0.723 0.126 0.746 1.174 0.428 0.794 1.056 0.262
Petroleum and Natural Gas 0.207 0.950 0.743 0.417 0.901 0.484 0.596 1.206 0.610
Utilities 0.276 0.487 0.210 0.139 0.193 0.054 0.272 0.651 0.379
Communication 0.570 1.138 0.568 0.584 1.390 0.806 0.275 1.669 1.395
Personal Services 0.594 0.740 0.146 0.552 1.002 0.450 0.614 1.225 0.611
Business Services 0.496 1.375 0.879 0.967 1.714 0.747 0.766 1.395 0.628
Computers 0.877 1.583 0.706 0.947 1.638 0.690 1.124 1.475 0.350
Electronic Equipment 0.665 1.617 0.952 1.011 1.899 0.888 1.031 1.400 0.369
Measuring/Control Equipment 0.390 1.508 1.118 0.966 1.489 0.524 0.789 1.538 0.749
Business Supplies 0.617 0.620 0.002 0.406 0.796 0.391 0.659 1.238 0.579
Shipping Containers – – – – – – 0.628 1.115 0.488
Transportation 0.225 1.914 1.688 0.373 1.125 0.752 0.578 1.444 0.866
Wholesale 0.600 1.198 0.598 0.690 1.056 0.366 0.662 1.309 0.647
Retail 0.569 1.210 0.641 0.616 1.107 0.491 0.591 1.386 0.795
Restaurants, Hotels, Motels 0.509 1.247 0.738 0.392 0.660 0.268 0.457 1.331 0.873

16
 Panel C

Industry 1993-2002 1988-2002 1978-2002

Asset Growth Diff Asset Growth Diff Asset Growth Diff

Food Products 0.460 0.647 0.187 0.497 0.766 0.270 0.542 0.757 0.215
Recreation 0.662 1.028 0.367 0.713 1.098 0.385 0.764 1.176 0.413
Entertainment 0.408 1.181 0.773 0.464 1.163 0.700 0.503 1.356 0.853
Printing and Publishing 0.421 0.838 0.417 0.478 0.904 0.426 0.504 1.031 0.527
Consumer Goods 0.471 0.975 0.504 0.548 1.021 0.473 0.655 1.102 0.447
Apparel 0.521 1.012 0.491 0.600 1.040 0.440 0.678 1.061 0.383
Health Care 0.589 1.370 0.782 0.625 1.406 0.781 0.627 1.651 1.023
Medical Equipment 0.548 1.277 0.728 0.601 1.282 0.681 0.716 1.410 0.694
Pharmaceutical Products 0.923 1.514 0.591 0.951 1.435 0.484 0.845 1.393 0.548
Chemicals 0.518 0.911 0.393 0.501 1.180 0.679 0.609 1.292 0.683
Rubber and Plastic Products 0.437 0.929 0.492 0.530 0.925 0.394 0.661 1.161 0.500
Textiles 0.379 0.926 0.548 0.496 1.036 0.541 0.641 1.153 0.513
Construction Materials 0.416 1.070 0.654 0.502 1.086 0.584 0.651 1.283 0.632
Construction 0.555 1.279 0.724 0.595 1.430 0.834 0.730 1.512 0.782
Steel Works Etc 0.588 1.272 0.684 0.631 1.223 0.592 0.729 1.285 0.556
Fabricated Products 0.493 2.145 1.652 0.502 1.546 1.044 0.792 1.541 0.749
Machinery 0.499 1.330 0.831 0.568 1.363 0.795 0.682 1.399 0.717
Electrical Equipment 0.716 1.562 0.846 0.709 1.447 0.738 0.805 1.478 0.673
Automobiles and Trucks 0.420 1.327 0.906 0.536 1.306 0.770 0.695 1.415 0.720
Aircraft 0.397 1.069 0.672 0.545 0.959 0.414 0.797 1.340 0.543
Precious Metals 0.490 0.344 -0.146 0.447 0.277 -0.170 0.456 0.334 -0.122
Metal Mining 0.640 0.852 0.212 0.667 0.793 0.126 0.784 1.176 0.392
Petroleum and Natural Gas 0.312 0.925 0.613 0.357 0.963 0.606 0.543 1.206 0.663
Utilities 0.208 0.340 0.132 0.223 0.436 0.213 0.272 0.652 0.379
Communication 0.577 1.264 0.687 0.477 1.313 0.835 0.468 1.568 1.100
Personal Services 0.573 0.871 0.298 0.580 0.939 0.358 0.630 1.074 0.444
Business Services 0.732 1.545 0.813 0.721 1.467 0.746 0.776 1.501 0.725
Computers 0.912 1.611 0.698 0.938 1.533 0.595 1.056 1.606 0.549
Electronic Equipment 0.838 1.758 0.920 0.883 1.624 0.741 0.991 1.613 0.622
Measuring/Control Equipment 0.678 1.499 0.821 0.700 1.432 0.731 0.796 1.578 0.782
Business Supplies 0.511 0.708 0.196 0.542 0.893 0.351 0.637 1.025 0.388
Shipping Containers – – – 0.607 1.170 0.564 0.680 1.109 0.429
Transportation 0.299 1.519 1.220 0.390 1.492 1.102 0.491 1.448 0.958
Wholesale 0.645 1.127 0.482 0.653 1.160 0.508 0.688 1.213 0.525
Retail 0.593 1.159 0.566 0.612 1.239 0.627 0.635 1.283 0.647
Restaurants, Hotels, Motels 0.450 0.954 0.503 0.438 1.089 0.651 0.514 1.212 0.698

17