Influence of capital structure on firm´s financial performance : an inter-industry investigation of German listed firms

This paper investigates the influence of capital structure on the firm performance of German public listed firms. A fixed effect regression model has been used on unbalanced panel data of all non-financial and non-governmental companies over the period 2012-2017. Capital structure was measured by the book values of short-term debt, long-term debt, and total debt. ROE, ROA and Tobin`s Q have been used as measures of firm performance. The findings show that on a country level, capital structure has a linear and positive influence on firm performance for the accounting-based measures ROE and ROA. The market, however, seems not to recognize this relationship. Furthermore, the study investigated the influence capital structure has on firm performance across the different industries and the results show strong evidence that this influence differs across the industries analyzed. This means that a general conclusion on a country level, without controlling for the different industries might be misleading and should therefore be avoided