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Non‐operating earnings and firm risk*
Author(s) -
Jory Surendranath,
Ngo Thanh,
Wang Hongxia
Publication year - 2021
Publication title -
review of financial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.347
H-Index - 41
eISSN - 1873-5924
pISSN - 1058-3300
DOI - 10.1002/rfe.1111
Subject(s) - operating leverage , earnings , business , volatility (finance) , leverage (statistics) , earnings before interest and taxes , earnings growth , monetary economics , earnings per share , stock (firearms) , economics , finance , profitability index , mechanical engineering , machine learning , computer science , engineering
We find that non‐operating earnings reduce total earnings volatility, stock price volatility, idiosyncratic risk, and crash risk. The risk‐reducing effects of non‐operating earnings are higher than those of operating earnings for risk measures based on stock market data. Non‐operating earnings serve to mitigate risks among firms with operating losses, high financial leverage, high growth uncertainty, and low‐ability managers.