Capital Structure of German publicly listed Firms: Evidence from the Financial Crisis

This paper examines the impact of the capital structure on firm performance of German listed firms using fixed-effect models. The main focus lies on the impact of the financial crisis (2008-2010) on the relationship between leverage and firm financial performance. Firm performance is measured by ROA and ROE. Capital structure is measured using book values of short-term, long-term and total debt. Moreover, the explanatory variables are lagged by one year. Based on the trade-off theory and the agency cost theory, multiple hypotheses have been created. The dataset contains 3372 data units across a time period of 9 years. The findings of this paper show that the financial crisis does not negatively affect the performance with regards to the capital structure of firms. Leverage has a positive relationship with both ROA and ROE for the financial crisis-period and post-crisis period. Also, there is no evidence which suggests that leverage has an inverted u-shaped relationship with performance measured by ROA and ROE as proposed by the literature.