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Leverage and corporate performance: International evidence

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  • González, Víctor M.
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    Abstract

    This paper analyzes the effect of financial leverage on corporate operating performance and how this effect varies across countries. Results for 10,375 firms in 39 countries indicate that the performance of firms with greater leverage is significantly reduced compared to their competitors in industry downturns, in line with the importance of financial distress costs. However, this effect varies according to the legal origin of the countries, being positive in French civil law countries. The protection of shareholder rights and the strength of legal enforcement are the main variables explaining the effect of financial leverage on performance.

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    File URL: http://www.sciencedirect.com/science/article/pii/S1059056012000652
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    Bibliographic Info

    Article provided by Elsevier in its journal International Review of Economics & Finance.

    Volume (Year): 25 (2013)
    Issue (Month): C ()
    Pages: 169-184

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    Handle: RePEc:eee:reveco:v:25:y:2013:i:c:p:169-184

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    Web page: http://www.elsevier.com/locate/inca/620165

    Related research

    Keywords: Leverage; Operating performance; Legal origin; Investor protection; Legal enforcement;

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    Cited by:
    1. Lee, Cheng-Few & Kuo, Nan-Ting, 2014. "Effects of ultimate ownership structure and corporate tax on capital structures: Evidence from Taiwan," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 409-425.

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