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Do Firms Balance Their Operating and Financial Leverage? - The Relationship Between Operating and Financial Leverage in Swedish Listed Companies
Uppsala University, Disciplinary Domain of Humanities and Social Sciences, Faculty of Social Sciences, Department of Business Studies.
Uppsala University, Disciplinary Domain of Humanities and Social Sciences, Faculty of Social Sciences, Department of Business Studies.
2013 (English)Independent thesis Basic level (degree of Bachelor), 10 credits / 15 HE creditsStudent thesis
Abstract [en]

Previous research on the tradeoff between operating and financial leverage has come to contradicting results, thus, there is no consensus of opinion regarding van Horne’s tradeoff theory. This study investigates whether there is support for the tradeoff theory on a sample of 347 Swedish, listed firms. Unlike previous studies, we employ a method with direct measures using guidance provided by Penman (2012), rather than using the more common degree of operating and financial leverage as proxies. During the time period 2006-2011 we find a statistically significant negative relationship of 0.214 using an OLS regression with financial leverage as the dependent variable, giving support for the tradeoff theory. The adjusted explanatory power (adjusted R2) is however rather low, despite adding four control variables, reaching only 7.4%.

Place, publisher, year, edition, pages
2013. , 41 p.
Keyword [en]
operating leverage, financial leverage, capital structure, cost structure, Van Horne’s tradeoff theory
National Category
Business Administration
Identifiers
URN: urn:nbn:se:uu:diva-202220OAI: oai:DiVA.org:uu-202220DiVA: diva2:631463
Uppsok
Social and Behavioural Science, Law
Supervisors
Available from: 2013-06-24 Created: 2013-06-20 Last updated: 2013-06-24Bibliographically approved

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CiteExportLink to record
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Citation style
  • apa
  • ieee
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  • vancouver
  • Other style
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Language
  • de-DE
  • en-GB
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  • nn-NO
  • nn-NB
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  • Other locale
More languages
Output format
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