Asymmetric Price Adjustment, Sticky Costs and Operating Leverage over the Business Cycle
AbstractÂ‘Operating leverageÂ’describes the extent to which a Â…FirmÂ’s operating costs are fiÂ…xed in the short term. Operating leverage ampliÂ…es the earnings impact of a change in revenues; an effect which is further amplified by fiÂ…nancial leverage and by non-proportionality in the tax system. Since the costs of adjusting capacity are likely to vary depending on the nature of the inputs, we expect to see sectoral differences in operating leverage around the business cycle and, indeed, differential adjustment costs underlie the distinction between cyclical and non-cyclical fiÂ…rms that is popular with fiÂ…nancial market practitioners. We fiÂ…nd using a large data set on quoted UK companies between 1966 and 2010 that there are significant differences among sectors in the way it which operating leverage adjusts.
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Bibliographic InfoPaper provided by Spatial Economics and Econometrics Centre, Heriot Watt University in its series SEEC Discussion Papers with number 1402.
Date of creation: 2014
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Operating Margin; panel data; Â…fixed and Â‡flexible costs; Business Cycles;
Find related papers by JEL classification:
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- D4 - Microeconomics - - Market Structure and Pricing
- G30 - Financial Economics - - Corporate Finance and Governance - - - General
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