Relationship between Accounting Based Risk and Return: Analysis for Turkish Companies

Accounting based risk and return relationship is a relatively incomplete issue, which has mostly been studied under a separate framework from financial markets based risk and return. Researchers find different results for different classifications of companies/industries/time frames. This paper reports the cross-section and panel correlations between accounting risk and return for various industrial company size categories in Turkey. The goal is to show the direction and magnitude of the relationship. When standard deviation is used as a risk measure, significant correlations are typically positive for small & medium sized companies and large companies. The positive relationship is very strong when the performance measure is ROE. All significant correlations become negative for very large sized companies. For each size category, no difference is observed between low-performers and high-performers in terms of significant coefficient signs. However, when we look at the magnitude of coefficients, there are some substantial differences between size categories, and between performance categories. When the risk measure is total debt to total assets ratio, our results show significant negative association between return and risk for all company size categories.