Final answer:
The statement that operating leverage affects the left-hand side of the balance sheet while financial leverage affects the right-hand side is false. Operating leverage relates to the income statement and cost structure, whereas financial leverage, which does appear on the right-hand side, is about the capital structure comprised of debt and equity.
Step-by-step explanation:
The statement that operating leverage primarily affects the left-hand side of the balance sheet, while financial leverage affects the right-hand side of the balance sheet is False. Operating leverage is concerned with the cost structure of a company and affects the company's ability to generate profit given changes in sales. It is related to the proportion of fixed costs to variable costs in the company's operations, but it does not have a direct impact on the balance sheet. Instead, operating leverage affects the income statement through its impact on operating income.
On the other hand, financial leverage involves the use of borrowed funds for investment with the hope that the profits made will be greater than the interest payable. Financial leverage directly affects the right-hand side of the balance sheet, which lists the company's liabilities and equity. Financial leverage is also related to the concept of capital structure, the mix of debt and equity used to finance a company's assets.
During the technology boom of the late 1990s, businesses anticipated high returns on new technology investments causing their demand for financial capital to shift to the right. Conversely, during the 2008 and 2009 Great Recession, their demand for financial capital shifted to the left due to the higher risk and lower potential returns, which affected their capital structure and hence the balance sheet. Banks as financial intermediaries facilitate these transactions and any impact on asset values or interest rate changes can influence a bank's net worth.