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Leverage and corporate performance: International evidence

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  • González, Víctor M.

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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  • González, Víctor M., 2013. "Leverage and corporate performance: International evidence," International Review of Economics & Finance, Elsevier, vol. 25(C), pages 169-184.
    • Handle: RePEc:eee:reveco:v:25:y:2013:i:c:p:169-184
    DOI: 10.1016/j.iref.2012.07.005
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    10. Godsday Okoro Edesiri, 2014. "Financial Leverage Behaviour and Firm Performance: Evidence from Publicly Quoted Companies in Nigeria," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 10(4), pages 99-106, August.
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    More about this item

    Keywords

    Leverage; Operating performance; Legal origin; Investor protection; Legal enforcement;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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