Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments May 20, 2016 erstellt
Description:
Finance theory implies equity returns should be positively related to financial leverage. However, Penman et al. (2007) decompose the book-price ratio into financing and operating components and report a negative association between financial leverage and returns. We shed new light on this puzzle by examining a region in which previous research has established that firms' financial leverage choices are motivated by factors other than maximizing shareholders' wealth: we hypothesize that this must be reflected in both how financial leverage is priced and the book-price ratio. We show that the relationship between equity returns and financial leverage for stocks in our sample is indeed very different to the findings of Penman et al. (2007), and this is reflected in the decomposed elements of the book-price ratio