Menu
Home
People
Places
Arts
History
Plants & Animals
Science
Life & Culture
Technology
Reference.org
Homemade leverage
open-in-new
<p>In <a href="/facts/Finance/fLh1GgN8">finance</a>, homemade leverage is the use of personal borrowing of investors to change the amount of <a href="/facts/Leverage_(finance)/aLNbPlPP">financial leverage</a> of the firm. Investors can use homemade leverage to change an unleveraged firm into a leveraged firm. </p><p>According to the <a href="/facts/Corporate_Finance_Institute/FElk5ueg">Corporate Finance Institute</a>, "the founding philosophy of homemade leverage is the <a href="/facts/Modigliani%25E2%2580%2593Miller_theorem/8DyhCsgf">Modigliani–Miller theorem</a>, which assumes an efficient market and the absence of corporate taxes and bankruptcy costs." </p><p>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.” </p>