The University of Southampton
University of Southampton Institutional Repository

Firms’ cost structure and stock return volatility

Firms’ cost structure and stock return volatility
Firms’ cost structure and stock return volatility
Purpose: This paper proposes a framework to identify a pattern in the relationship between firms’ cost structure (i.e., fixed versus variable) and their volatility in stock returns.
Design/methodology/approach: Our empirical analysis is based on a panel data regression where we use an extended sample period and a time-series regression-based elasticity measure of operating leverage.
Findings: We document significantly higher systematic risk among firms with large fixed costs, a conclusion which confirms theoretical predictions of earlier studies. In new findings, we document high firm- specific risk, and high stock returns volatility among firms with a fixed cost structure.
Originality/value: The paper fills a gap in the literature by examining the effect of cost structure using various operating leverage measures and other control measures for firm characteristics on idiosyncratic risk. Studies that seek to explain firms’ systematic risks are numerous; conversely, there are relatively fewer studies on the determinants of firms’ specific risks.
Cost Structure, Operating Leverage, Idiosyncratic Risk, Market Risk, Beta, Total Risk, Competition Effects
0307-4358
Chen, Haiwei
e09a8f8f-19a7-4ba9-b4c6-4264b197313c
Jory, Surendranath
2624eb24-850a-48f6-b3c6-c96749b87322
Mishra, Tapas
218ef618-6b3e-471b-a686-15460da145e0
Ngo, Thanh
852ea7b9-fd74-4a39-9281-87626e50886b
Chen, Haiwei
e09a8f8f-19a7-4ba9-b4c6-4264b197313c
Jory, Surendranath
2624eb24-850a-48f6-b3c6-c96749b87322
Mishra, Tapas
218ef618-6b3e-471b-a686-15460da145e0
Ngo, Thanh
852ea7b9-fd74-4a39-9281-87626e50886b

Chen, Haiwei, Jory, Surendranath, Mishra, Tapas and Ngo, Thanh (2020) Firms’ cost structure and stock return volatility. Managerial Finance. (doi:10.1108/MF-01-2020-0005). (In Press)

Record type: Article

Abstract

Purpose: This paper proposes a framework to identify a pattern in the relationship between firms’ cost structure (i.e., fixed versus variable) and their volatility in stock returns.
Design/methodology/approach: Our empirical analysis is based on a panel data regression where we use an extended sample period and a time-series regression-based elasticity measure of operating leverage.
Findings: We document significantly higher systematic risk among firms with large fixed costs, a conclusion which confirms theoretical predictions of earlier studies. In new findings, we document high firm- specific risk, and high stock returns volatility among firms with a fixed cost structure.
Originality/value: The paper fills a gap in the literature by examining the effect of cost structure using various operating leverage measures and other control measures for firm characteristics on idiosyncratic risk. Studies that seek to explain firms’ systematic risks are numerous; conversely, there are relatively fewer studies on the determinants of firms’ specific risks.

Text
mangfinance_randr_18May2020 - Accepted Manuscript
Download (723kB)

More information

Accepted/In Press date: 11 August 2020
Keywords: Cost Structure, Operating Leverage, Idiosyncratic Risk, Market Risk, Beta, Total Risk, Competition Effects

Identifiers

Local EPrints ID: 443616
URI: http://eprints.soton.ac.uk/id/eprint/443616
ISSN: 0307-4358
PURE UUID: b16cf131-1828-45fc-856b-6aaf9e02fa26
ORCID for Surendranath Jory: ORCID iD orcid.org/0000-0002-8265-0001
ORCID for Tapas Mishra: ORCID iD orcid.org/0000-0002-6902-2326

Catalogue record

Date deposited: 04 Sep 2020 16:32
Last modified: 13 Dec 2021 06:14

Export record

Altmetrics

Contributors

Author: Haiwei Chen
Author: Tapas Mishra ORCID iD
Author: Thanh Ngo

Download statistics

Downloads from ePrints over the past year. Other digital versions may also be available to download e.g. from the publisher's website.

View more statistics

Atom RSS 1.0 RSS 2.0

Contact ePrints Soton: eprints@soton.ac.uk

ePrints Soton supports OAI 2.0 with a base URL of http://eprints.soton.ac.uk/cgi/oai2

This repository has been built using EPrints software, developed at the University of Southampton, but available to everyone to use.

We use cookies to ensure that we give you the best experience on our website. If you continue without changing your settings, we will assume that you are happy to receive cookies on the University of Southampton website.

×