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The impact of leverage reduction on the equity risk level of the firm : an exploratory study of French firms

Author

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  • Rahim Bah

    (GDF - Gestion, Droit et Finance - EESC-GEM Grenoble Ecole de Management)

Abstract

Although it is admitted that financing decisions affect the equity risk of the firm, few studies have been dedicated to the analysis of the relationship between risk and leverage. In fact, to our knowledge, no study has addressed the question of whether leverage reduction has an effect on equity risk. This exploratory paper addresses this issue using data on French firms. The results of the study show that leverage reduction significantly reduces equity risk. However, an indirect test of the relative importance of this effect indicates that the reduction may not lead to shifts in risk classes. In other words, asset risk is the more important risk factor.

Suggested Citation

  • Rahim Bah, 2000. "The impact of leverage reduction on the equity risk level of the firm : an exploratory study of French firms," Working paper serie RMT - Grenoble Ecole de Management hal-00450167, HAL.
    • Handle: RePEc:hal:gemwpa:hal-00450167
    Note: View the original document on HAL open archive server: http://hal.grenoble-em.com/hal-00450167
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