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The financial leverage paradox. The confusion surrounding the leverage concept
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Title: The financial leverage paradox. The confusion surrounding the leverage concept

Creator:

Berent, Tomasz S.

Description:

Argumenta Oeconomica, 2020, Nr 1 (44), s. 301-319

Abstrakt:

With the help of a simple question juxtaposing geared and ungeared positions, this paper analyzes the inherent ambiguity present in the concept of financial leverage. The answer to this question depends on the way it is (often automatically) understood. It may be perceived as being either about risk, risk reward or a mix of the two. The range of possible answers is virtually unlimited. Unfortunately, most of them, including that given by Miller in his Nobel Prize Lecture, are inconsistent with finance theory. This paradox is represented by the inability to answer the simple question in an unambiguous way, yet its gravity comes from the fact that it is neither noted nor debated in the literature. The confusion surrounding financial performance evaluation, ROE debate or executive pay are just a few examples of how lethal the leverage paradox can be. The leverage-driven financial crisis of recent years shows that the chaos in the literature exemplified by the paradox may easily spill over into real life

Publisher:

Wydawnictwo Uniwersytetu Ekonomicznego we Wrocławiu

Place of publication:

Wrocław

Date:

2020

Resource Type:

artykuł

Resource Identifier:

doi:10.15611/aoe.2020.1.12 ; oai:dbc.wroc.pl:75784

Language:

eng

Relation:

Argumenta Oeconomica, 2020, Nr 1 (44)

Rights:

Pewne prawa zastrzeżone na rzecz Autorów i Wydawcy

Access Rights:

Dla wszystkich zgodnie z licencją

License:

CC BY-NC-ND 3.0 PL

Location:

Uniwersytet Ekonomiczny we Wrocławiu

Group publication title:

Argumenta Oeconomica

Object collections:

Last modified:

May 26, 2022

In our library since:

Jun 23, 2020

Number of object content hits:

677

All available object's versions:

https://dbc.wroc.pl/publication/144337

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The financial leverage paradox. The confusion surrounding the leverage concept May 26, 2022
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