Plenary Keynote Lectures
Yossi (Joseph) Yagil, Professor of Finance,
Former Dean, Faculty of Management
University of Haifa, Haifa, Israel
Former President, Carmel Academic Center, Haifa, Israel
Topic: Managing the Relationship between Leverage and Risk
This paper tests the relationship between financial leverage and shareholders' systematic risk under the following capital market imperfections: corporate and personal taxes as well as risky debt and bankruptcy costs. This relationship has not yet been examined empirically in the literature. Using data from publicly traded American industrial firms, we find that risky debt models rather than their corresponding risk free debt models are more appropriate for describing the link between risk and financial leverage. In light of the recent world crisis, the impact of these market imperfections has important implications for corporate managers, financial analysts and policy makers seeking to manage the relationship between leverage and risk.