Homemade leverage

In finance, '''homemade leverage''' is the use of personal borrowing of investors to change the amount of financial leverage of the firm. Investors can use '''homemade leverage''' to change an unleveraged firm into a leveraged firm.<ref>{{cite web|title=Homemade Leverage|url=https://www.investopedia.com/terms/h/homemadeleverage.asp#axzz1coLadjRK|accessdate=5 November 2011}}</ref><ref>{{cite book|last=Ross|first=Stephen|title=Essentials of Corporate Finance|year=2011|publisher=Mc Graw Hill|location=North Ryde, New South Wales|pages=403}}</ref>

According to the Corporate Finance Institute, "the founding philosophy of homemade leverage is the Modigliani–Miller theorem, which assumes an efficient market and the absence of corporate taxes and bankruptcy costs."<ref name=":0">{{Cite web|title=Homemade Leverage - Overview, Pros, Cons, & Considerations|url=https://corporatefinanceinstitute.com/resources/knowledge/trading-investing/homemade-leverage/|access-date=2021-05-30|website=Corporate Finance Institute|language=en-US}}</ref>

Investors take this concept and use it to “recreate a leverage scenario using a portion of their investments. The argument works under the assumption that corporate taxes and bankruptcy costs are absent, which would otherwise disrupt an investor’s ability to produce the leverage scenario accurately.”<ref name=":0" />

==See also== *Leverage *Modigliani–Miller theorem

== References list == {{reflist}}

Category:Investment