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24. February 2012 Kommentieren Kommentare Kategorien: Unternehmensbewertung

Market Risk Premium for Austria up to 5.5% (at least)

The market risk premium represents the difference between the expected return of the market portfolio and the risk-free rate. In its latest publication, dated January 17th 2012, the Specialist Committee on the valuation of companies of the Chamber of Certified Public Accountants recommends to currently apply a market risk premium of 5.5% for the Austrian market.

In the light of the already enacted change in the Austrian tax system concerning the taxation of capital gains (a flat rate tax of 25% will be imposed on all capital gains, before this amendment long-term capital gains had been tax free) and the accompanying assimilation of the Austrian to the German tax system, the Specialist Committee believes, until further notice, a market risk premium (before personal income tax) of 4.5% to 5.5% (until now: 4.5% to 5.0%) to be appropriate. In conjunction with the currently observable situation on capital markets the Specialist Committee recommends the use of a market risk premium at the upper end of this suggested range.

Apart from this, there are also a number of other sources which estimate market risk premiums. One very popular is Prof. Damodaran’s website. At the moment, he estimates the market risk premium for mature equity markets, e.g. Austria, at 6.0%. He splits the market risk premium in two separate factors: (1) a risk premium for a mature equity market (estimated from US historical data) and (2) a country risk premium which adjusts the market risk premium for a greater default risk as compared to a mature equity market. The default risk is estimated on the basis of Moody’s country ratings. Since Austria still enjoys highest credibility (according to Moody’s – Standard & Poor’s has already downgraded Austria), his estimate for the market risk premium for Austria equals that of a mature equity market.

As a final remark, we want to stress that especially in the light of the current economic situation, one should keep in mind the need for consistency of all valuation parameters – therefore also the market risk premium needs to be ana-lyzed carefully. It should be noted, that the market risk premium should never be considered as a stand-alone pa-rameter – valuation professionals should rather keep in mind that the single parameters of the discount rate are re-lated to each other and therefore interact with one another. As initially stated, the market risk premium is the differ-ence between the expected return of the market portfolio and the risk-free rate. Hence, those variables have a direct impact on the market risk premium and thus an integrated approach is required. Furthermore, all other assumptions underlying a valuation, e.g. assumptions concerning cash flows, growth rates or the economic situation, should be analyzed and taken into consideration when deriving the discount rate.

Johannes Kroner
jkroner@deloitte.at
+43 (0)1 537 00 2823

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