Operating Leverage over the Business Cycle

Arnab Bhattacharjee, Chris Higson and Sean Holly

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: Operating leverage describes the extent to which a firm’s operating costs are fixed in the short run. The effect of operating leverage is to amplify the impact on profit of a change in revenues; an effect which is further amplified by financial leverage and by asymmetry in the tax system. In this paper we provide empirical estimates of operating leverage at the firm level, using a long panel of data on UK quoted firms. We report sectoral differences in operating leverage around the business cycle, and show that these can be partly explained in terms of costly labour adjustment and asymmetric price adjustment.

Keywords: operating margin; panel data; fixed and flexible costs; business cycles (search for similar items in EconPapers)
JEL-codes: D4 E32 G30 (search for similar items in EconPapers)
Date: 2015-11-24
New Economics Papers: this item is included in nep-bec and nep-mac
Note: sh247
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:1535

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