TY - JOUR
T1 - Modified degree of operating leverage risk measure
AU - Aharon, David Y.
AU - Kroll, Yoram
AU - Riff, Sivan
N1 - Publisher Copyright:
© 2022 Elsevier Inc.
PY - 2023/1
Y1 - 2023/1
N2 - 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.
AB - 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.
KW - COVID-19
KW - FCF
KW - Idiosyncratic risk
KW - Non-well-diversified investors
KW - Operating leverage
KW - Risk-return efficient frontier
UR - http://www.scopus.com/inward/record.url?scp=85142139674&partnerID=8YFLogxK
U2 - 10.1016/j.frl.2022.103493
DO - 10.1016/j.frl.2022.103493
M3 - ???researchoutput.researchoutputtypes.contributiontojournal.article???
AN - SCOPUS:85142139674
SN - 1544-6123
VL - 51
JO - Finance Research Letters
JF - Finance Research Letters
M1 - 103493
ER -