Structure of owner’s risk rewards depending on the sector sensitivity to the economic cycle


  • Zdeněk Konečný


cyclical sectors, neutral sectors, anti-cyclical sectors, market life cycle, economic cycle, owner’s risk rewards


Purpose of the article: All national economies go through their economic cycle and partial sectors of these economies go through their market life cycle, too. But the course of the market life cycle doesn’t have to ever be the same as in the case of the economic cycle. So, there exist sectors with different sensitivities to economic cycle. The sector sensitivity can considerably influence many financial quantities, especially quantities describing the entrepreneurial risk, which can be expressed in form of cost of capital. The main aim of this article is to find out the structure of cost of equity, which is required in sectors with different sensitivity to the economic cycle. Methodology/methods: There are used and analyzed secondary data for periods from I. 2007 to II. 2011, gotten from materials published by the Czech Statistical Office and the Czech Ministry of Industry and Trade. The sector sensitivity is measured according to the correlation between gross domestic product (GDP), used for considering the economic cycle, and amount of sales reached on the sector, used for identifying the market life cycle. The structure of owner’s risk rewards is calculated with the use of the constructional model by the Czech Ministry of Industry and Trade. Scientific aim: There is selected one cyclical, one neutral and one anti-cyclical, ever with the extreme value of the coefficient of correlation. By each of these three sectors there is calculated the structure of cost of equity to know shares of partial owner’s risk rewards. Findings: Highest values of all risk rewards are reached in the anti-cyclical sector. On the contrary there is reached the lowest value of risk reward to the size of the company (rLA) in the cyclical sector and of the risk reward to entrepreneurial risk (rPOD) in the neutral sector. The risk reward to financial stability (rFINSTAB) and to financial structure (rFINSTRU) were required in both sectors approximately on the same level. Conclusions: From the findings there can be derived, that investments in companies acting in anti-cyclical sectors is the most risky. But there are some limits, that follow from used methods. There were used data, that are valid only for czech sectors and only for selected periods. And furthermore, there isn’t considered the life cycle of companies, acting in selected sectors, and their market position, derived from corporate- and market life cycle.