Lang, Ofek, and Stulz (1996) Analyzed the Relationship Between Leverage

question 3

Short Answer

Lang, Ofek, and Stulz (1996) analyzed the relationship between leverage and growth opportunities.They focus on the market's assessment of the ability of the firm to generate profitable growth.Their measure of profitable growth opportunities is Tobin's q ratio, the ratio of the market value of the firm's equity to its book value.They summarize their results as follows: "We show that there is a negative relation between leverage and future growth.This negative relation between leverage and growth holds for firms with (i) Tobin's q ratio, but not for firms with (ii)__ Tobin's q.
$\begin{array} { l c l } & \text { (i) } & \text { (ii) } \\\text { a. } & \text { low } & \text { high } \\\text { b. } & \text { high } & \text { low }\end{array}$

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Definitions:

Psychographic Segmentation

A marketing strategy that divides potential customers into segments based on their personality traits, values, attitudes, interests, or lifestyles.

Income

The financial gain earned from work, investments, business operations, or other sources, typically measured over a specific time period.

Lifestyle

The interests, opinions, behaviours, and behavioural orientations of an individual, group, or culture.

Demographic Segmentation

The division of a market into segments based on variables such as age, gender, income, education, and family size to better target marketing efforts.