This paper investigates the effect of operating leverage, and the subsequent abandonment option available to managers, on the relationship between corporate earnings and optimal financial leverage, thereby providing an alternative (rational) explanation for the observed negative relationship between these two quantities. Working in a dynamic capital structure setting, where corporate earnings are modelled as an exogenous stochastic process, we explicitly add fixed operating costs to the firm's value optimisation. This introduces a degree of operating leverage and a non-zero value to the implicit abandonment option of the firm's manager. Solving for the firm's optimal timing and financing decisions we are able to derive the relationship between current corporate earnings and optimal financial leverage for a large class of earnings uncertainty assumptions. The theoretical implications are then tested empirically using a large selection of S&P 500 firms. Our analysis reveals that the manager's flexibility to abandon the project introduces nonlinearities into the valuation that are sufficient to reconcile the trade-off theory with the empirically observed negative earnings/financial leverage relationship. We further find theoretical and empirical evidence of a positive relationship between operating and financial leverage. Previous studies have used mean-reverting earnings as an explanation for the observed negative earnings/financial leverage relationship in a trade-off theory setting. We show that the relationship does not need to be process specific. Instead, it is a direct result of the financial flexibility of managers.

Conventional approaches to improving the representation of women on the boards of major companies typically focus on increasing the number of women appointed to these positions. We show that this strategy alone does not improve gender equity. Instead of relying on aggregate statistics (“headcounts”) to evaluate women’s inclusion, we use network analysis to identify and examine two types of influence in corporate board networks: local influence measured by degree centrality and global influence measured by betweenness centrality and k-core centrality. Comparing board membership data from Australia’s largest 200 listed companies in the ASX200 index in 2015 and 2018 respectively, we demonstrate that despite an increase in the number of women holding board seats during this time, their agency in terms of these network measures remains substantively unchanged. We argue that network analysis offers more nuanced approaches to measuring women’s inclusion in organizational networks and will facilitate more successful outcomes for gender diversity and equity.

The trade-off theory revisited: on the effect of operating leverage Kristoffer J. Glover Gerhard Hambusch Article information:To cite this document: Kristoffer If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service information about how to choose which publication to write for and submission guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information. About Emerald www.emeraldinsight.comEmerald is a global publisher linking research and practice to the benefit of society. The company manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well as providing an extensive range of online products and additional customer resources and services.Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation. AbstractPurpose -The purpose of this paper is to investigate the effect of operating leverage, and the subsequent abandonment option available to managers, on the relationship between corporate earnings and optimal financial leverage, thereby providing an alternative (rational) explanation for the observed negative relationship between these two quantities. Design/methodology/approach -Working in a dynamic capital structure setting, where corporate earnings are modelled as an exogenous stochastic process, the paper explicitly adds fixed operating costs to the firm's value optimisation. This introduces a degree of operating leverage (DOL) and a nonzero value to the implicit abandonment option of the firm's manager. Solving for the firm's optimal timing and financing decisions the paper is able to derive the relationship between current corporate earnings and optimal financial leverage for a large class of earnings uncertainty assumptions.The theoretical implications are then tested empirically using a large selection of S&P 500 firms. Findings -The analysis reveals that the manager's flexibility to abandon the project introduces nonlinearities into the valuation that are sufficient to reconcile the trade-off theory with the empirically observed negative earnings/financial leverage relationship. The paper further finds theoretical and empirical evidence of a positive relationship between operating and financial leverage. Originality/value -Previous studies have used mean-reverting earnings as an explanation for the observed negative earnings/financial leverage relationship in a trade-off theory setting. The paper shows that the relationship does not need to be process specific. Instead, it is a direct result of the financial flexibility of managers.

Bank regulators have worked to develop statistical models predicting bank failures, but such models cannot be estimated during periods of few failures. We address this problem using an alternative approach, forecasting the leverage ratio as a continuous variable that avoids the small sample problem. The leverage ratio is a natural choice in this setting both because of its historically consistent ability to predict failures and because of regulators' primary focus on bank capitalization. Our model selection draws on both the earlier literature and more recent stress-testing studies. Out-of-sample performance shows promise as a supplement to the standard approach.