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Transportation Industry…Cost Structure, Stock Return
suggest the need for additional transportation industry data and further study of our methodology
in order to more confidently access the relationship of these variables and beta.
Interestingly, the coefficient on operating leverage (OL) is positive and significant at the < 5 %
level (one tailed) in both regressions. This suggests that transportation firms with a higher degree
of operating leverage are likely to have higher betas. This is an encouraging result, given our
limited data set, and supports further exploration of the relationship between beta and operating
leverage in the transportation industry.
CONCLUSIONS AND FUTURE RESEARCH
The preliminary operating leverage results are in line with the hypothesis that firms choosing
higher operating leverage may also have higher betas. However, the regression results with regard
to other theoretically important determinants of beta (our control variables) leave us with more
questions than answers. In order to better frame this study within the current literature, we are
currently gathering data to fill in missing years and adding transportation firms to the data set. To
gather these data we are perusing firms’ annual reports, utilizing other publicly available data
sources as well as using an updated Compustat data source. Our hope is that a more complete
data set will provide a more accurate assessment of the relationship between beta and a strategy
of cost management that favors higher operating leverage for firms in the transportation industry.
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