Financial Risk in the Pulp and Paper Industry: An Empirical Test of the Risk Exposure´s Impact on the Stock Return
Independent thesis Advanced level (degree of Master (One Year)), 10 credits / 15 HE creditsStudent thesis
This thesis uses the Arbitrage Pricing Theory framework to examine whether the companies’ stated risk factors have an impact on the stock return. The selected companies are Billerud, Holmen and Rottneros, three companies in the Swedish pulp and paper industry. The risk factors used in the multiple regression models are the SAX-index, the 12-month Treasury bill rate, an exchange rate, a pulp or paper index, and the electricity price, which are identified by studying financial reports together with interviews with the companies. The general result from the regression models indicates that stock returns are positively related to the Treasury bill for all the companies. Since the studied companies’ do not have high debt-to-equity ratios, the relationship with the Treasury bill is probably more related to the business cycle than their interest rate risk exposure. The only additional variable which affects the return of Billerud is the paper-index. However, it is only significant in one sub-period. None of Holmen’s stated risk factors affect the stock return, except for the Treasury bill. The result from the regression model applied on Rottneros indicates that in addition to the Treasury bill, the exchange rate SEK/USD is positively related for all the estimated periods. Conclusions from this thesis are both valuable for investors and the studied companies. Investors are provided with important evidence of which factors to take into consideration before investing in these companies, and the companies can use the result to understand how their financial risk management is perceived by the stock market, and identify which of their stated risk factors that has a real impact on the stock return. Although the result from a study like this shows either strong statistic relationship between the variables or weak relationship between them, it is important to be careful when drawing conclusions from it. The possibility that the data or the estimated time periods could be inappropriate is always present in the field of econometrics and statistics.
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IdentifiersURN: urn:nbn:se:su:diva-4722OAI: oai:DiVA.org:su-4722DiVA: diva2:194324