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 (DOL). This diversity is partially attributable to the lack of accessible accounting data suitable for the calculations. 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 DOL. The analyses indicate that the various proxies for DOL exhibit both conceptual and empirical differences that are generally consistent across industries and over estimation periods.