SYSTEMATIC RISK DETERMINANTS IN THE EVALUATION OF COMPANIES IN THE REPUBLIC OF SERBIA

Abstract

According to the methodology for estimating the value of
capital in the Republic of Serbia, the components of systematic risk
are determined by the Ministry of Economy. Legislative acts
regulating evaluation in the Republic of Serbia are obsolete and do
not take into account the real value of parameters (risk-free rate and
country risk) of systematic risk affecting the level of the discount rate.
Besides, only once, in 2002, these determinants were estimated by the
competent authorities. Since 2002 there have been significant changes
in the market development and in the business-environment
conditions, so the established determinants do not reflect the actual
level of systematic risk. Consequently, this leads to a constant
underestimation of the estimated value of the company. In other
unchanged conditions of the DCF model, the use of "statutory" determinants of systematic risk leads to an unjustified increase in the
price of capital, which, on the one hand, motivates investors to buy
companies at unrealistically low prices, and on the other hand, leads
them to an incorrect assumption that they can expect higher yield
rates than realistic. The usage of unrealistically determined value of
discount rate parameters in the period of the conjunction, with
potential intentional or accidental errors of a business appraiser in
defining the level of specific risk of a company, all lead to the
inaccurately estimated value of the company in question.