how the hamada equation works
robert hamada is a former professor of finance at the university of chicago booth school of business hamada started teaching at the university in 1966 and served as the dean of the business school from 1993 to 2001 his equation appeared in his paper the effect of the firm s capital structure on the systemic risk of common stocks in the journal of finance in may 1972 the formula for the hamada equation is l u 1 1 t d e where l levered beta u unlevered beta t tax rate d e debt to equity ratio begin aligned beta l beta u left 1 1 t left frac d e right right textbf where beta l text levered beta beta u text unlevered beta t text tax rate d e text debt to equity ratio end aligned l u 1 1 t ed where l levered beta u unlevered beta t tax rated e debt to equity ratio unlevered beta is the market risk of a company without the impact of debt debt to equity ratio is a measure of a company s financial leverage 