A firm's financial policy drives its equity beta.

Question

Quizplus · Accepted Answer

A firm's financial policy, such as its capital structure and dividend policy, can impact its overall risk and therefore affect its equity beta. For example, a firm with a higher level of debt may have a higher equity beta as the increased financial leverage increases the volatility and risk of the company's earnings and stock price. Therefore, financial policy can have an impact on a company's equity beta.

A Firm's Financial Policy Drives Its Equity Beta