Operating Leverage and Stock Returns: International Evidence

The primary goal of this study is to present a method of overcoming problems connected with an estimation of the relationship between operating leverage and stock returns. A large variety of electronic sources were examined prior to doing the research, which involves empirical testing of theories predicting the association of operating leverage with stock returns and the value premium based on the international data sample. On the grounds of the regression model, which takes instrumental variables into consideration, we will analyze a modest sample of 1026 firms taken over a 5-year time frame (2015-2020) in a form of panel data. Accordingly, operating leverage turned out to be, indeed, related to stock returns and the value premium across the sampled countries. Moreover, the presence of the value premium may be explained by the underlying risk exposure of fixed asset risk of operational leverage, which is reflected through the value premium.