A re-examination of the operating leverage-financial leverage tradeoff hypothesis

Michael T. Dugan, Donald H. Minyard, Keith A. Shriver

Research output: Contribution to journalArticle

7 Scopus citations

Abstract

The "tradeoff" hypothesis states that firms trade off their operating leverage and financial leverage to manage their level of overall risk. The objective of this study is to examine whether firms that exhibit a relatively high degree of apparent tradeoff differ in financial attributes from firms that exhibit a relatively low degree of apparent tradeoff. The empirical results provide evidence that the two types of firms differ significantly with respect to certain financial attributes (ratios), though the results are sensitive to the choice of estimation technique for calculating the degree of operating leverage and degree of financial leverage coefficients.

Original languageEnglish (US)
Pages (from-to)327-334
Number of pages8
JournalQuarterly Review of Economics and Finance
Volume34
Issue number3
DOIs
StatePublished - Jan 1 1994
Externally publishedYes

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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