Determinants of Systematic Risk: Empirical Evidence from Firms Listed on the KSE-100 Index in Pakistan

Abstract

This study revisits the determinants of systematic risk among non-financial firms listed on the KSE-100 Index in Pakistan, providing contemporary empirical evidence from an emerging market context. The research aims to identify firm-specific financial factors that significantly influence systematic risk and assess their relative explanatory power. The study adopts a quantitative, cross-sectional research design using secondary data from 80 non-financial firms over the period 2008–2013. Systematic risk, measured as market beta (β), is estimated through the Capital Asset Pricing Model (CAPM). Six firm-specific determinants—financial risk, operating risk, income risk, spread risk, productivity risk, and growth risk—are analyzed using Ordinary Least Squares (OLS) regression. The results indicate that productivity, growth, and income risks have a significant positive impact on systematic risk, while financial and operating risks exhibit weaker relationships. Productivity risk emerges as the most influential determinant, suggesting that efficient asset utilization can mitigate exposure to market volatility. The findings highlight the importance for investors and policymakers to monitor firm-level productivity and earnings stability when evaluating market sensitivity.