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African Journal of Business Management Vol.6 (3), pp. 1095-1099,25 January, 2012 Available online at http://www.academicjournals.org/AJBM DOI: 10.5897/AJBM11.2266 ISSN 1993-8233 ©2012 Academic Journals

Full Length Research Paper

Operating leverage and systematic risk
Kheder Alaghi
Armenian State Agrarian University, Armenia. E-mail: [e-mail].
Accepted 25 October, 2011

The aim of this paper is to study the effect of operating leverage in the systematic risk of listed companies in Tehran Stock Exchange. In this study, operating leverage (OL) as independent variable and systematic risk (β) as the dependent variable are considered. SIG ≤ 0.05 means H0 hypothesis is rejected; otherwise there is no adequate reason for rejecting H0. For testing the hypothesis of this study, linear regression technique has been used. According to the results obtained, H0 is confirmed because SIG = 0.20 > 0.05. Thus, operating leverage has no effect on the systematic risk of listed companies in Tehran Stock Exchange. Key words: Operating leverage, capital structure, systematic risk, financial leverage, earnings before interest and taxes (EBIT). INTRODUCTION Risk is the potential that a chosen action or activity (including the choice of inaction) will lead to a loss (an undesirable outcome). The notion implies that a choice has an influence on the existing outcome (or existed). Potential losses themselves may also be called "risks". Almost any human endeavour carries some risk, but some are much more risky than others. Return on equity, free cash flow (FCF) and price-to-earnings ratios are a few of the common methods used for gauging a company 's well-being and risk level. One measure that does not get enough attention is operating leverage, which captures the relationship between a company 's fixed and variable costs. In good times, operating leverage can supercharge profit growth; in bad times, it can crush profits. Even a rough idea of a firm 's operating

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