anecdotal, our comparative analysis of Hunt and Landstar is an illustrative case in point.As stated above relative to J. B Hunt, Landstar has chosen a less risky high variable coststructure across all OL proxies (DOL,AP, andCOMPDRV) resulting in a correspondinglylowerBeta(Table VI and Figure 1). Yet Landstar has earned higher returns reflecting their(unreported) superior operating margins.One limitation of this study is that the results may not be generalizable across allindustries since managers do not always have discretion over OL levels; for example,technological constraints in some capital intensive industries compel firms to adhere to aninflexiblehighfixedcoststructure.Theresultssuggestthatmanagersshouldnevertheless identify and be aware of the market risk effects of “discretionary” fixedcosts. For example, the findings strongly suggest that a trucking firm manager’s choicebetween employee driven and owner-operated trucks significantly impacts the firm’sequityBeta. Hence, within the context of the firm’s industry and in conjunction with otheroperational factors, managers should consciously consider the impact of cost structurechoices on the firm’s systematic risk.MF38,121198
Notes1. “Thetransportationlogisticssegmentoffersitscustomers,throughitsindependentcommission sales agent network, national warehousing services without owning or leasingfacilities or hiring employees to work at warehouses” (Landstar, 2009, p. 5). “In general,Warehouse Capacity Owners are paid a fixed percentage of the gross revenue for storageand services provided through their warehouse” (Landstar, 2009, p. 7).2.Betais calculated by regressing each firm’s month-end buy and hold returns with dividendsreinvested on the corresponding monthly returns of the CRSP value weighted index. A furtherdiscussion of the methodology for estimatingBetain our primary tests is provided in themethodology section.3. Data for return on assets is obtained from Compustat and computed as the sum of the fiscalyear net income and interest expense divided by total assets.4. Data for return on equity is obtained from Compustat and computed as the end of fiscal yearnet income divided by stockholder’s equity.5. In accordance with Compustat assets are measured in units of one million.6. Including negative DFL estimates does not change the direction or significance of ouroperating leverage variables of interest.7. According to Value Line, the (simple) averageBetafor SIC 4213 trucking firms over the1999-2006 period is 0.86 (,adamodar/New_Home_Page/data.html).ReferencesBall, R. and Brown, P. (1968), “An empirical evaluation of accounting income numbers”,Journalof Accounting Research, Vol. 6 No. 2, pp. 159-78.Basu, S. (1997), “The conservatism principle and the asymmetric timeliness of earnings”,Journalof Accounting and Economics, Vol. 24 No. 1, pp. 3-37.
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