An empirical investigation of the inter-relationships between systematic risk, financial leverage and operating leverage of industrial companies listed on the Johannesburg Stock Exchange

The Capital Asset Pricing Model (CAPM) postulates that beta is a quantitative measure of a company's undiversifiable risk, the determinants of which are of considerable interest to financial managers and investors alike. Analytical research has shown that beta is a positive function of a company's unlevered or asset beta and its market value debt to equity ratio (i.e. financial leverage). In turn, unlevered beta has been shown to be a positive function of a company's operating leverage, and the trade-off between operating and financial leverage proposed as a means of stabilising beta. The objective of this research was to empirically determine the nature of the relationships · between: beta and financial leverage; beta and operating leverage; and financial and operating leverage. A significant level of positive association was hypothesised between beta and both financial and operating leverage, while a significant negative association was hypothesised between financial leverage and operating leverage.

Grantor dc:publisher.institution

College of Accounting

Year dc:date.issued

1996

Author dc:creator

• Troughton, Mark Timothy

Advisor dc:contributor.advisor

• Flynn, David

Language dc:language.iso

eng

Handle dc:identifier.uri

http://hdl.handle.net/11427/16112

OAI identifier oai:identifier

oai:open.uct.ac.za:11427/16112