The Effects of Estimation Period, Industry, and Proxy on the Calculation of the Degree of Operating Leverage.

Much diversity exists in the approaches used by finance researchers to estimate a firm's degree of operating leverage. This diversity is partially attributable to the lack of accessible accounting data suitable for the calculation. As a result, researchers have devised various proxies for the degree of operating leverage from whatever accounting data are externally available. This paper examines the effects of estimation period, industry, and proxy on the calculation of degree of operating leverage. The analyses indicate that the various proxies for degree of operating leverage exhibit both conceptual and empirical differences that are generally consistent across industries and over estimation periods. Copyright 1989 by MIT Press.