The impact of operating and financial risk on equity risk

Research output: Contribution to journalArticleResearchpeer-review

10 Citations (Scopus)

Abstract

This paper empirically investigates a complete theoretical model relating the operating characteristics of a firm to the total, systematic, and unsystematic risk of its equity. The degree of operating leverage, the ratio of net profits to firm value, and the variability of unit output are all found to be positively correlated with each of the three risk measures. The degree of financial leverage, while positively related to total and unsystematic risk, does not appear to be related to systematic risk. After controlling for the business risk of the firm, no evidence can be found of an interaction between the degree of operating leverage and the degree of financial leverage.

Original languageEnglish
Pages (from-to)27-38
Number of pages12
JournalJournal of Economics and Finance
Volume20
Issue number3
DOIs
StatePublished - 1 Sep 1996

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Financial risk
Operating leverage
Financial leverage
Equity risk
Systematic risk
Risk measures
Firm value
Profit
Business risk
Interaction
Equity

Cite this

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The impact of operating and financial risk on equity risk. / Lord, Richard.

In: Journal of Economics and Finance, Vol. 20, No. 3, 01.09.1996, p. 27-38.

Research output: Contribution to journalArticleResearchpeer-review

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