Browsing by Subject "Cross section of expected returns"
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Item Open Access Inflexible firm commitments, operating leverage risk and expected returns(Bilkent University, 2015-07) Doğan, Figen GüneşLabor is one of the most important input to the firm. Firms pay wages to employees in return for their human capital. Operating leases are the largest source of external financing to the firm. Labor costs and non-cancellable operating lease expenses are two large claims on firm cash flows. This dissertation is focused on how these almost fixed costs affect firm risk and expected returns. Three essays empirically examine the links among cost inflexibility, cash flow sensitivity to business cycle and operating leverage risk. The first essay empirically documents that firms with more operating lease commitments earn a significant premium over firms with fewer commitments, and this premium is countercyclical. The second essay shows that a measure of firm’s labor intensity relative to its industry is associated with higher equity returns for manufacturing firms. The third essay, using ex-ante implied cost of capital as a proxy for equity risk, shows that the firms that carry a relatively high labor share, have higher ex-ante discount rates.Item Open Access Non-cancellable operating leases and operating leverage(Blackwell Publishing Ltd, 2016) Dogan, F. G.This paper explores the link between a firm's non-cancellable operating lease commitments and stock returns. Firms with more operating lease commitments earn a significant premium over firms with fewer commitments, and this premium is countercyclical. Non-cancellable operating lease payments represent a major claim on a firm's cash flows. Firms with high levels of operating leases have higher cash flow sensitivity to aggregate shocks and hence higher operating leverage. The relationship between operating leases and stock returns is stronger in small firms than in big firms. © 2015 John Wiley & Sons, Ltd.