Financial Economics
Teimur Mohammadi; Mohammad Reza Feghhi Kashani; Mahdi Samei
Abstract
The negative correlation between an asset’s volatility and its return is known as the “leverage effect”. This relation is explained by the effect of the return of a firm’s equity on the degree of leverage in its capital structure. If this relation holds, the increased volatility ...
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The negative correlation between an asset’s volatility and its return is known as the “leverage effect”. This relation is explained by the effect of the return of a firm’s equity on the degree of leverage in its capital structure. If this relation holds, the increased volatility resulting from a fall in stock price should be comparable with the decreased volatility resulting from a price rise with the same magnitude and also, this effect should be persistent. Most of the researches in the “leverage effect” examine the relation between volatility and stock return. To examine the effects of both returns and financial leverage on volatility data from the 22 biggest companies from March 2009 to March 2019 in Tehran Stock Exchange are collected. To find the leverage the value of debt in the capital structure of selected companies is calculated using Geske compound option pricing model. The data show the leverage effect only in negative returns and may have a negligible direct connection to the firm leverage.
Financial Economics
Vahid Taghinezhadomran; Zahra Mila Elmi; Fatemeh Zahra Husseinpor
Abstract
Banks have a considerable ability to use financial leverage compared to non-bank firms to earn high profits and returns with support of the central bank as a last resort lender. The ability of banks to use leverage depends on internal characteristics such as size, profitability and risk, as well as environmental ...
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Banks have a considerable ability to use financial leverage compared to non-bank firms to earn high profits and returns with support of the central bank as a last resort lender. The ability of banks to use leverage depends on internal characteristics such as size, profitability and risk, as well as environmental variables such as inflation, which affect the Business cycle. This study aims to find the effects of these variables on the dependency of banks on financial leverage in recession and booms periods. To this end, Hodrick-Prescott filter was used to extract business cycles. The Generalized Method of Moments (GMM) based on the data from 18 Iranian banks during 2005-2018 was used in order to test the research hypotheses. The results show that larger banks are more inclined to leverage and economic conditions have no significant effect on this desire. Banks with better financial stability and less risk rely on lower financial leverage in times of economic prosperity. The effect of profitability criteria on the leverage of banks depends on economic conditions. In times of economic prosperity, banks with better profitability have a higher incentive to leverage. Also, how the inflation affects the financial leverage of banks depends on the economic conditions. During an economic boom, inflation encourages more reliance on leverage in banks.