Firm Leverage and the Financial Crisis
AbstractThe firm growth dynamics is an important topic since the growth performance of firms is the main source of the economic growth in countries. Generally, crises produce a sharp decline in firms’ growth and this leads to a decline in both the level of employment and the income of households. This paper focuses on the role of firm leverage on the growth performance of the firm during the global financial crisis. We investigate whether the firms that experienced a large leverage increase before the global financial crisis has worse growth performance of 2007 to 2009 than the firms that didn’t experience this rise. The findings suggest that the poorer sales growth performance of the firm was related to the firm leverage increase before the global financial crisis. The evidence shows that the correlation between leverage growth and the poorer sales growth performance is robust to firm-level control variables, such as size, age, fixed assets, liquid assets, inventories, profitability, export share and industry-specific factor.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 49194.
Date of creation: Aug 2013
Date of revision:
Leverage; Growth; Global Financial Crisis; Financial Stability;
Other versions of this item:
- Fatih Altunok & Arif Oduncu, 2014. "Firm Leverage and the Financial Crisis," Working Papers, Research and Monetary Policy Department, Central Bank of the Republic of Turkey 1427, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
- G30 - Financial Economics - - Corporate Finance and Governance - - - General
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Dunne, Timothy & Roberts, Mark J & Samuelson, Larry, 1989.
"The Growth and Failure of U.S. Manufacturing Plants,"
The Quarterly Journal of Economics, MIT Press,
MIT Press, vol. 104(4), pages 671-98, November.
- Dunne, T. & Roberts, M.J. & Samuelson, L., 1988. "The Growth And Failure Of U.S. Manufacturing Plants," Papers, Pennsylvania State - Department of Economics 1-87-5, Pennsylvania State - Department of Economics.
- Lang, Larry & Ofek, Eli & Stulz, Rene M., 1996.
"Leverage, investment, and firm growth,"
Journal of Financial Economics, Elsevier,
Elsevier, vol. 40(1), pages 3-29, January.
- Moritz Schularick & Alan M. Taylor, 2009.
"Credit Booms Gone Bust: Monetary Policy, Leverage Cycles and Financial Crises, 1870–2008,"
NBER Working Papers
15512, National Bureau of Economic Research, Inc.
- Moritz Schularick & Alan M. Taylor, 2012. "Credit Booms Gone Bust: Monetary Policy, Leverage Cycles, and Financial Crises, 1870-2008," American Economic Review, American Economic Association, American Economic Association, vol. 102(2), pages 1029-61, April.
- Schularick, Moritz & Taylor, Alan M., 2009. "Credit Booms Gone Bust: Monetary Policy, Leverage Cycles and Financial Crises, 1870-2008," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7570, C.E.P.R. Discussion Papers.
- Edward E. Leamer, 2007.
"Housing IS the Business Cycle,"
NBER Working Papers
13428, National Bureau of Economic Research, Inc.
- Edward E. Leamer, 2007. "Housing is the business cycle," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, Federal Reserve Bank of Kansas City, pages 149-233.
- King, Mervyn, 1994. "Debt deflation: Theory and evidence," European Economic Review, Elsevier, Elsevier, vol. 38(3-4), pages 419-445, April.
- Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, Econometric Society, vol. 50(3), pages 649-70, May.
- Huynh, Kim P. & Petrunia, Robert J., 2010. "Age effects, leverage and firm growth," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 34(5), pages 1003-1013, May.
- Aivazian, Varouj A. & Ge, Ying & Qiu, Jiaping, 2005. "The impact of leverage on firm investment: Canadian evidence," Journal of Corporate Finance, Elsevier, Elsevier, vol. 11(1-2), pages 277-291, March.
- Asli Demirgüç-Kunt & Vojislav Maksimovic, 1998. "Law, Finance, and Firm Growth," Journal of Finance, American Finance Association, American Finance Association, vol. 53(6), pages 2107-2137, December.
- Bronwyn H. Hall, 1986.
"The Relationship Between Firm Size and Firm Growth in the U.S. Manufacturing Sector,"
NBER Working Papers
1965, National Bureau of Economic Research, Inc.
- Hall, Bronwyn H, 1987. "The Relationship between Firm Size and Firm Growth in the U.S. Manufacturing Sector," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 35(4), pages 583-606, June.
- McConnell, John J. & Servaes, Henri, 1995. "Equity ownership and the two faces of debt," Journal of Financial Economics, Elsevier, Elsevier, vol. 39(1), pages 131-157, September.
- Dunne, Paul & Hughes, Alan, 1994. "Age, Size, Growth and Survival: UK Companies in the 1980s," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 42(2), pages 115-40, June.
- Chittenden, Francis & Hall, Graham & Hutchinson, Patrick, 1996. " Small Firm Growth, Access to Capital Markets and Financial Structure: Review of Issues and an Empirical Investigation," Small Business Economics, Springer, Springer, vol. 8(1), pages 59-67, February.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.