The impact of operating and financial risk on equity risk

Research output: Contribution to journalArticlepeer-review

15 Scopus citations


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
Issue number3
StatePublished - Sep 1996


Dive into the research topics of 'The impact of operating and financial risk on equity risk'. Together they form a unique fingerprint.

Cite this