A Systematic Review of the Impact of Leverage and Macroeconomic Factors on Systematic Risk of Common Stock: Exploring Profitability as a Mediator and Size as a Moderator

Purpose: Amid growing scholarly interest in the determinants of systematic risk, this study critically explores the dynamic interlinkages among financial and operating leverage, macroeconomic forces, and systematic risk in equity markets, positioning profitability as a mediating construct and firm size as a boundary condition that moderates the strength and direction of these relationships. By integrating theoretical postulations with empirical scrutiny, this research aspires to construct a methodologically fortified framework. The study aims to delineate the transmission of systematic risk inherent in common stocks and leverage dynamics within financial markets under disparate macroeconomic paradigms.
Design/Methodology/Approach: Employing the PRISMA 2020 benchmark for systematic review and the Biblioshiny platform for comprehensive analyses, the inquiry adopts a structured and sophisticated academic approach to examine, synthesize, and analyze the extensive literature across the temporal expanse from 1979 to 2024, encompassing a total of 206 empirical studies.
Findings: The results underscore critical gaps in comprehending the complex interactions between leverage, macroeconomic factors, and their effects on systematic risk associated to common stocks across diverse contexts. Particularly striking are the pivotal functions exerted by the mediating prowess of profitability and the moderating sway of company size amidst these intricate dynamics. Findings have the potential to empower stakeholders in the corporate financial sector.
Originality: This study brings coherence to a fragmented body of research by systematically integrating the interrelated influences of financial and operating leverage, alongside macroeconomic factors, on the systematic risk of common stock, while incorporating their mediating and moderating effects. Moving beyond the limitations of prior isolated analyses, it offers a unified, theory-grounded, and empirically validated framework. This integrative model advances a deeper understanding of how leverage and macroeconomic forces jointly shape the transmission of systematic risk within the equity markets.