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We empirically test theories predicting the association of operating leverage with stock returns and the value premium using an international data sample. Results suggest that operating leverage is related to stock returns and the value premium across the sampled countries. Results are robust to cross-country differences, typical controls, multiple definitions of operating and financial leverage, and while controlling for the endogeneity of operating and financial leverage. This suggests that the explanation for the presence of the value premium lies in the underlying risk exposure of fixed asset risk of operating leverage which is expressed through the value premium. Results further suggest that strengthening labor protection exogenously increases operating leverage.