Size, leverage, and dividend record as determinants of equity risk

THE EMPIRICAL MODEL USES THESE VARIABLES: THE EARNINGS DIVIDEND RANKING, BETA RISK MEASURE, STOCK TURNOVER RATIO, THE FIRM"S FINANCIAL LEVERAGE, THE FIRM"S SIZE, AND ITS DIVIDEND RECORD. THE AUTHORS CONCLUDE THAT FISHER"S FINDINGS WITH RESPECT TO CORPORATE BONDS ARE ALSO TRUE FOR COMMON STOCK: THE FIRM"S SIZE, AND ITS DIVIDEND RECORD. THE AUTHORS CONCLUDE THAT FISHER"S FINDINGS WITH RESPECT TO CORPORATE BONDS ARE ALSO TRUE FOR COMMON STOCK: THE FIRM"S DIVIDEND RECORD PROVED TO BE A SIGNIFICANT DETERMINANT OF THE FIRM"S EQUITY RISK. HOWEVER, THIS FINDING SHOULD NOT BY SIMPLY INTERPRETED AS BEARING ON THE CONTROVERSY CONCERNING THE EFFECT OF DIVIDEND POLICY ON THE COST OF CAPITAL; THE FIRM"S DIVIDEND RECORD MEASURES ITS SUCCESS IN MAINTAINING ITS TARGET DIVIDEND POLICY AND ITS UNDERLYING EARNINGS STABILITY. THE LEVEL OF EXPLANATION OF THE MODEL WAS NOT ALWAYS HIGH, SUGGESTING THAT MORE RESEARCH IS NEEDED IN ANALYZING ADDITIONAL DETERMINANTS OF RISK AND DEFINING ADDITIONAL MEASURES OF RISK. MORE THAN ONE RISK MEASURE SHOULD BE USED IN FUTURE EMPIRICAL STUDIES.