TY - JOUR
AU - NARAYANASWAMY, C. R.
AB -  A Mean-Variance Synthesis of Corporate Financial Theory: A Note C. R. NARAYANASWAMY* THISNOTE CLARIFIES a common misinterpretation of Rubinstein’s result [2] concerning the relationship between operating leverage and operating risk of the firm in the context of the CAPM. We show that, contrary to the general interpretation, Rubinstein’s model indicates an inverse relationship between operating leverage and operating risk. The operating risk of the firm can be defined as where B is the operating risk of the firm, R is the return on the firm, R is the M return on the market portfolio, cov is the covariance operator, and var is the variance operator. Assuming that the firm produces only one product, equation (1)can be expressed as where Q (a random variable) is the output in units, u is the variable cost per unit, p is the price per unit, p represents correlation coefficient, and V is the value of the firm. Equation (2) can be rewritten as The value of the firm, in the context of the CAPM, can be expressed as V = [ ( ( P - u>Q - P - V P - u)cov(Q, RM)l/(l + r), I (4) where Q is the 
TI - A Mean‐Variance Synthesis of Corporate Financial Theory: A Note
JO - The Journal of Finance
DO - 10.1111/j.1540-6261.1988.tb03953.x
DA - 1988-06-01
UR - https://www.deepdyve.com/lp/wiley/a-mean-variance-synthesis-of-corporate-financial-theory-a-note-tUw6OjmaW0
SP - 529
VL - 43
IS - 2
DP - DeepDyve
ER -