What explains the value premium? The case of adjustment costs, operating leverage and financial leverage

    Research output: Contribution to journalArticleResearchpeer-review

    5 Citations (Scopus)

    Abstract

    This paper empirically examines and compares the different theoretical predictions on how adjustment costs, operating and financial leverage influence the value premium. Consistent with Ozdagli (2012), financial leverage plays a dominant role, supported by adjustment costs (which represent the degree of investment irreversibility). Specifically, the observed value premium is driven by the financial leverage differences between value and growth firms, partially neutralized by investment irreversibility. The relation between the value premium and investment irreversibility is contrary to the intuition in Zhang (2005) and Cooper (2006). Operating leverage does not significantly influence the value premium.
    Original languageEnglish
    Pages (from-to)350 - 366
    Number of pages17
    JournalJournal of Banking and Finance
    Volume59
    DOIs
    Publication statusPublished - 2015

    Cite this

    @article{ba1e421e7607464ca174144f30eb772e,
    title = "What explains the value premium? The case of adjustment costs, operating leverage and financial leverage",
    abstract = "This paper empirically examines and compares the different theoretical predictions on how adjustment costs, operating and financial leverage influence the value premium. Consistent with Ozdagli (2012), financial leverage plays a dominant role, supported by adjustment costs (which represent the degree of investment irreversibility). Specifically, the observed value premium is driven by the financial leverage differences between value and growth firms, partially neutralized by investment irreversibility. The relation between the value premium and investment irreversibility is contrary to the intuition in Zhang (2005) and Cooper (2006). Operating leverage does not significantly influence the value premium.",
    author = "Cao, {Viet Nga}",
    year = "2015",
    doi = "10.1016/j.jbankfin.2015.04.033",
    language = "English",
    volume = "59",
    pages = "350 -- 366",
    journal = "Journal of Banking and Finance",
    issn = "0378-4266",
    publisher = "Elsevier",

    }

    What explains the value premium? The case of adjustment costs, operating leverage and financial leverage. / Cao, Viet Nga.

    In: Journal of Banking and Finance, Vol. 59, 2015, p. 350 - 366.

    Research output: Contribution to journalArticleResearchpeer-review

    TY - JOUR

    T1 - What explains the value premium? The case of adjustment costs, operating leverage and financial leverage

    AU - Cao, Viet Nga

    PY - 2015

    Y1 - 2015

    N2 - This paper empirically examines and compares the different theoretical predictions on how adjustment costs, operating and financial leverage influence the value premium. Consistent with Ozdagli (2012), financial leverage plays a dominant role, supported by adjustment costs (which represent the degree of investment irreversibility). Specifically, the observed value premium is driven by the financial leverage differences between value and growth firms, partially neutralized by investment irreversibility. The relation between the value premium and investment irreversibility is contrary to the intuition in Zhang (2005) and Cooper (2006). Operating leverage does not significantly influence the value premium.

    AB - This paper empirically examines and compares the different theoretical predictions on how adjustment costs, operating and financial leverage influence the value premium. Consistent with Ozdagli (2012), financial leverage plays a dominant role, supported by adjustment costs (which represent the degree of investment irreversibility). Specifically, the observed value premium is driven by the financial leverage differences between value and growth firms, partially neutralized by investment irreversibility. The relation between the value premium and investment irreversibility is contrary to the intuition in Zhang (2005) and Cooper (2006). Operating leverage does not significantly influence the value premium.

    U2 - 10.1016/j.jbankfin.2015.04.033

    DO - 10.1016/j.jbankfin.2015.04.033

    M3 - Article

    VL - 59

    SP - 350

    EP - 366

    JO - Journal of Banking and Finance

    JF - Journal of Banking and Finance

    SN - 0378-4266

    ER -