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The influence of leverage on firm performance: a corporate governance perspective

Hutten, Elody (2014) The influence of leverage on firm performance: a corporate governance perspective.

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Abstract:A central question with respect to corporate finance is concerned with capital structure. Corporate governance provides a perspective on capital structure: the free cash flow hypothesis and the monitoring hypothesis. Both hypotheses suggest that leverage can increase firm performance by reducing the agency conflict. The current study will investigate the influence of leverage on firm performance from a corporate governance perspective. Further, it will discriminate between the entire sample and two subsamples: an overinvestment subsample and a small firms subsample. The results reveal an insignificant effect of leverage on firm performance with respect to the entire sample, the overinvestment subsample and the small firms subsample. A robustness check further reveals that leverage does have a significant effect on firm performance in the entire sample when predicting ROE instead of Tobin’s q and that this positive relationship also occurred in the overinvestment subsample but more pronounced.
Item Type:Essay (Bachelor)
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:85 business administration, organizational science
Programme:International Business Administration BSc (50952)
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