What Does the CAPM Say About Operating Leverage?

Martina K. Linnenluecke, Tom Smith*, Yun Shen, Yushu Zhu, Zini Liang

*Corresponding author for this work

    Research output: Contribution to journalComment/debatepeer-review

    Abstract

    We examine the issue of operating leverage and firm value. Johnstone (2020), in this issue, questions existing results which indicate that higher operating leverage results in lower firm value. We agree with Johnstone (2020) that this result is to be questioned and present a number of arguments which indicate that operating leverage is irrelevant to the valuation of the firm in the context of the CAPM model.

    Original languageEnglish
    Pages (from-to)288-291
    Number of pages4
    JournalAbacus
    Volume56
    Issue number2
    DOIs
    Publication statusPublished - 1 Jun 2020

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