The impact of global financial crisis on estimating Beta

Whether it be GE, Samsung, Apple, Microsoft, HP, Reliance, Vodafone etc, most companies have had to make significant changes to their business mix/debt ratios by

1. Divesting non core operations(Shell/Rio Tinto/BHP/GE Financial)
2. Realigning reporting/organization structure as shown in segment reporting(nearly all firms!)
3. Taking on debt to purchase battered down assets elsewhere(Bharti Airtel, Tata Steel)
4. Using surplus cash to buy expensive assets(Microsoft, HP, Google)

And the process is still on while companies view these years as those of a paradigm shift. But why should you care? If you apply CAPM as an investor/analyst(most professionals do even if they ultimately ignore it), the traditional approach of regressing excess share price/market returns and finding the intercept, does not work when the business/debt has significantly changed. Luckily, the bottoms up Beta comes to our rescue at this juncture. As Damodaran puts it, it is , Weighted average Beta of the business or businesses a firm is in, adjusted for its debt to equity ratio. The betas for individual businessess are usually estimated by averaging the betas of firms in each of these businesses and correcting for the debt to equity ratio of these firms. This method though, needs that the industry peers have not changed much-which seems an unrealistic assumption unless those peers are public sector companies which are constrained by management from any dramatic changes.
My view:- SOTP(Sum of the parts) method would again rule the waves for Beta calculation. But before signing of on that elegant NPV calculation, ask yourself whether you can live with the limitations in the calculation of the Beta value presented to you. Expect plenty of research on this in times to come.