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The Effects of Leverage on Stock Returns

Andersson, Matilda LU (2016) NEKH02 20161
Department of Economics
Abstract
This paper investigates the relationship between capital structure and stock returns for Swedish firms listed on the Nasdaq OMX Stockholm Stock Exchange. Actual stock returns and leverage figures in form of total, long-term and short-term debt are used in the calculations. The results suggest, in contrast with a majority of fundamental theories, that there is a negative relationship between leverage and stock returns. The results indicate that investors are not being compensated for the extra risk they are taking on when investing with high-leveraged firms. Several previous empirical studies has come to the same conclusion. This study in conjunction with other earlier empirical studies question a very common understanding of capital... (More)
This paper investigates the relationship between capital structure and stock returns for Swedish firms listed on the Nasdaq OMX Stockholm Stock Exchange. Actual stock returns and leverage figures in form of total, long-term and short-term debt are used in the calculations. The results suggest, in contrast with a majority of fundamental theories, that there is a negative relationship between leverage and stock returns. The results indicate that investors are not being compensated for the extra risk they are taking on when investing with high-leveraged firms. Several previous empirical studies has come to the same conclusion. This study in conjunction with other earlier empirical studies question a very common understanding of capital structure. (Less)
Please use this url to cite or link to this publication:
author
Andersson, Matilda LU
supervisor
organization
course
NEKH02 20161
year
type
M2 - Bachelor Degree
subject
keywords
Capital Structure, Leverage, Stock Returns, Firm Performance
language
English
id
8889602
date added to LUP
2016-09-14 13:15:20
date last changed
2016-09-14 13:15:20
@misc{8889602,
  abstract     = {This paper investigates the relationship between capital structure and stock returns for Swedish firms listed on the Nasdaq OMX Stockholm Stock Exchange. Actual stock returns and leverage figures in form of total, long-term and short-term debt are used in the calculations. The results suggest, in contrast with a majority of fundamental theories, that there is a negative relationship between leverage and stock returns. The results indicate that investors are not being compensated for the extra risk they are taking on when investing with high-leveraged firms. Several previous empirical studies has come to the same conclusion. This study in conjunction with other earlier empirical studies question a very common understanding of capital structure.},
  author       = {Andersson, Matilda},
  keyword      = {Capital Structure,Leverage,Stock Returns,Firm Performance},
  language     = {eng},
  note         = {Student Paper},
  title        = {The Effects of Leverage on Stock Returns},
  year         = {2016},
}