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What Does the CAPM Say About Operating Leverage?

Linnenluecke, Martina K; Shen, Yun; Smith, Tom; Zhu, Yushu; Liang, Zixin


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

CollectionsANU Research Publications
Date published: 2020
Type: Journal article
Source: Abacus
DOI: 10.1111/abac.12198


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