The Impact of Financial and Operational Leverage on the Market and the Book Value of Banks' Shares in Saudi Arabia

Abstract

This study aims to investigate the impact of operating and financial leverage on the market value and the book value of the shares of listed banks on the Saudi Stock Exchange (Tadawul) for the period (2017-2019). We also investigate the extent to which the size of the company affects this impact. As we deal with longitudinal data, we use the fixed effects model, the random effects model, and the Hausmann test which enables a choice between them,

 Our findings show no correlation between the operational leverage and the share book value. However, we show a significant correlation between the operating leverage and the share market value. Conversely, there is no impact of the financial leverage on either share value. The results also show that there is a significant influence of the company's size on both the market and book share value.