Systematic Risk and Revenue Volatility

We introduce the degree of economic leverage (DEL) as an extension of the existing method of decomposing beta and assess its incremental explanatory power through empirical testing. The DEL is defined as the percentage change in the firm's sales resulting from a unit percentage change attributa...

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Bibliographic Details
Published inThe Journal of financial research Vol. 26; no. 2; pp. 179 - 189
Main Authors Griffin, Harry F., Dugan, Michael T.
Format Journal Article
LanguageEnglish
Published 350 Main Street , Malden , MA 02148 , USA , and 9600 Garsington Road , Oxford OX4 2DQ , UK Blackwell Publishing 01.06.2003
Southern Finance Association
Wiley Subscription Services, Inc
SeriesJournal of Financial Research
Subjects
Financial performance
G30
Interest rates
Mathematical models
Risk exposure
Sales
Spread
Studies
United States > US
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Summary:We introduce the degree of economic leverage (DEL) as an extension of the existing method of decomposing beta and assess its incremental explanatory power through empirical testing. The DEL is defined as the percentage change in the firm's sales resulting from a unit percentage change attributable to an exogenous economic disturbance. The exogenous economic disturbance employed is the ratio of long‐term T‐bond rates to short‐term T‐bill rates. The evidence supports the DEL's role in explaining systematic risk at both the industry and portfolio levels. However, we find mixed results at the firm level.
Bibliography:istex:A4B65B3276AB034D491775E49F103E42E9930861
ark:/67375/WNG-48QFNCGC-B
ArticleID:JFIR053
ISSN:0270-2592
1475-6803
DOI:10.1111/1475-6803.00053