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OPERATING LEVERAGE AND UNDERINVESTMENT
Journal of Financial Research, 2019AbstractUsing a contingent claims model, we examine the impacts of both operating leverage and financial leverage on a firm's investment decisions in the context of capacity expansion. Our model shows that quasi‐fixed operating costs could significantly mitigate the underinvestment problem for debt‐financed firms.
Feng Jiao +2 more
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Review of Finance, 2010
Abstract I derive and test implications of the operating leverage hypothesis for the cross-section of expected returns. Using a novel measure of operating leverage, I document that operating leverage predicts returns in the cross-section, and that strategies formed by sorting on operating leverage earn significant excess returns ...
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Abstract I derive and test implications of the operating leverage hypothesis for the cross-section of expected returns. Using a novel measure of operating leverage, I document that operating leverage predicts returns in the cross-section, and that strategies formed by sorting on operating leverage earn significant excess returns ...
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Operating leases, operating leverage, operational inflexibility and sticky costs
Finance Research Letters, 2019Abstract We show that a firm's operating lease expenses are the major driver of measures of a firm's operating leverage, operational inflexibility, and sticky costs. Moreover, we show that these expenses are an important determinant of a firm's asset volatility, and therefore has implications for the pricing of different securities.
Douglas O. Cook +2 more
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Operating leverage, financial leverage, and equity risk
Journal of Banking & Finance, 1983Abstract The analysis investigates the combined leverage effect of a fixed capacity decision (fixed cost) plus debt on the risk of equity returns. It is argued that the traditional DOL-DFL calculation is incorrect. A correct calculation is given, using the fact that the capacity decision is endogenous to the firm's decision process.
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A value premium without operating leverage
Finance Research Letters, 2012Abstract The existing real options literature explains the value premium as a consequence of either operating leverage raising risk in low-demand states or industry-wide investment lowering risk in high-demand states. This paper presents a simple model in which a value premium arises solely from capacity constraints.
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The relationship between operating leverage and financial leverage
Accounting & Finance, 2018AbstractWe model the relationship between operating and financial leverage. When operating leverage is exogenously specified, financial leverage is a monotonically decreasing function of operating leverage. When financial leverage is exogenously specified, operating leverage is initially increasing and subsequently decreasing in financial leverage ...
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Microeconomic influences on operating leverage
Journal of Economics and Business, 1984Abstract The concept of operating leverage generally has been visualized in the context of linear break-even analysis. This paper evaluates the properties of two measures of the degree of operating leverage using a more general short-run microeconomic model of the firm.
John D. Stowe, Charles A. Ingene
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The Mystery of Operating Leverage
SSRN Electronic Journal, 2020Operating leverage is one of the more popular parameters used in management practice and scientific research. However, its definition and measurement method are not coherent and are presented imprecisely in both textbooks and scientific publications.
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