University of Twente Student Theses


The impact of capital structure on firm performance in Western Europe

Rosink, N.J.F. (2020) The impact of capital structure on firm performance in Western Europe.

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Abstract:This study investigates the impact of capital structure on firm performance of non-financial listed companies in Western Europe. Capital structure is defined by the ratios of debt where the amount of total debt, long term debt and short term debt are divided by total assets. For the period of 2010 until 2018, the final sample of this research consists of 13041 observation using firms from the countries Austria, Belgium, Switzerland, Germany, Spain, France, United Kingdom, Italy and The Netherlands. With the use of the OLS regression, the results show a significant negative impact of capital structure on firm performance. This holds for all types of capital structure and firm performance (Return on equity, return on assets and Tobin’s Q). This negative impact has been the result in the crisis and the non-crisis period. This indicates that increasing debt and increasing the costs of deb lowers the firm performance. To increase validity, several robustness tests have been performed. With the use of the sample split method, by using only the manufacturing industry and using only firms from the United Kingdom, the results were similar and therefore the results in the main regression are more valid. An additional regression analysis with the use of lagged independent variables also confirmed the negative impact. Further research is needed to generalize the results.
Item Type:Essay (Master)
Faculty:BMS: Behavioural, Management and Social Sciences
Programme:Business Administration MSc (60644)
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