Modified degree of operating leverage risk measure

David Y. Aharon, Yoram Kroll*, Sivan Riff

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

1 Scopus citations

Abstract

Unlike the conventional Degree of Operating Leverage (DOL), we propose a modified DOL measure (MDOL) that considers both the exogenous shock to the demand function, and the volatility of the firm's asset as part of the idiosyncratic risk. Our model indicates that at times of turbulence such as the COVID-19 pandemic, global and local financial crises, MDOL can be much larger than the conventional DOL. The model supports the contention according to which, non-well diversified investors, who are commonly found in family firms, tend to underinvest to reduce their exposure to idiosyncratic risk.

Original languageEnglish
Article number103493
JournalFinance Research Letters
Volume51
DOIs
StatePublished - Jan 2023

Bibliographical note

Publisher Copyright:
© 2022 Elsevier Inc.

Keywords

  • COVID-19
  • FCF
  • Idiosyncratic risk
  • Non-well-diversified investors
  • Operating leverage
  • Risk-return efficient frontier

Fingerprint

Dive into the research topics of 'Modified degree of operating leverage risk measure'. Together they form a unique fingerprint.

Cite this