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The Impact of the Degree of Operating Leverage on Stock Returns: An Empirical Study in the Brazilian Market

Dantas, J. A.; Medeiros, O. R.; Lustosa, P. R. B. Revista de Contabilidade e Financas. Sao Paulo, n. 41, Mai/Ago, 2006.

14 Pages Posted: 23 Mar 2006 Last revised: 20 Apr 2012

Otavio Ribeiro de Medeiros

University of Brasilia

Paulo Roberto B. Lustosa

University of Brasilia

Jose Alves Dantas Sr.

University of Brasilia

Date Written: March 16, 2006

Abstract

Empirical studies evaluating the impact of accounting information on the stock market have acquired great importance in the accounting literature and have become an instrument to assess the relevance and usefulness of accountancy itself. Following this path, we investigate the impact of the degree of operating leverage on stock returns in the Brazilian market. Since there is a widely documented relationship between the degree of operating leverage and systematic risk, and between the latter and stock returns, it should be logical to infer an association between the degree of operating leverage and stock returns. We perform empirical tests using panel-data regressions with no effects, fixed effects and random effects to test the hypothesis that the degree of operating leverage is one of the factors determining the systematic risk of stocks. Our sample includes data extending from 2001 to 2004 of firms listed on the Brazilian Stock Market (Bovespa). We find evidence of a positive and significant relationship between those two variables, as expected.

Keywords: degree of operating leverage, stock returns, accounting information, Brazilian stock market

JEL Classification: G12, G32, G15, M41

Suggested Citation

de Medeiros, Otavio Ribeiro and Lustosa, Paulo Roberto B. and Dantas, Jose Alves, The Impact of the Degree of Operating Leverage on Stock Returns: An Empirical Study in the Brazilian Market (March 16, 2006). Dantas, J. A.; Medeiros, O. R.; Lustosa, P. R. B. Revista de Contabilidade e Financas. Sao Paulo, n. 41, Mai/Ago, 2006. . Available at SSRN: https://ssrn.com/abstract=891846 or http://dx.doi.org/10.2139/ssrn.891846

Otavio Ribeiro De Medeiros (Contact Author)

University of Brasilia ( email )

Campus Universitario Darcy Ribeiro
Gleba A - Reitoria
Brasilia, DF 70910-900
Brazil

HOME PAGE: http://geocities.yahoo.com.br/otaviomedeiros/index.html

Paulo Roberto B. Lustosa

University of Brasilia ( email )

Brasilia/DF, 70.910-900
Brazil

Jose Alves Dantas Sr.

University of Brasilia ( email )

Campus Universitário Darcy Ribeiro - Asa Norte
Brasilia, Distr. Federal 70074-900
Brazil

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