IDEAS home Printed from
   My bibliography  Save this article

The Impact Of The Financial Crisis On Corporate Capital Structure Dynamics In The Nordic Countries


  • Shab Hundal

    () (JAMK University of Applied Sciences, Finland)

  • Annika Sandstrom

    () (Haaga-Helia University of Applied Sciences, Finland)

  • Assel Uskumbayeva

    () (JAMK University of Applied Sciences, Finland)


The concept of corporate capital structure is dynamic in nature as the changing economic and business situations influence on it. Financial crisis of 2007-2008, among other things, have led companies to bring important changes in their capital structure. In turn, capital structure has also influenced corporate risks and the weighted average cost of capital of the firms. However, this topic is under-researched in general and in the context of Nordic countries, in particular. This paper examines the determinants that have affected firm-level corporate capital structure across Nordic countries during the financial crisis sub-period (2007-10). In addition, we also study and compare the same phenomenon during the pre (2003-06) and post financial crisis (2011-17) subperiods. The principal finding of the study underlines that during the pre-financial crisis period, firms producing high accounting- and market returns borrow less, thus rendering their capital structure more towards equity capital as more debt increases fixed cash outflows in the form of debt servicing. However, during and post financial crisis sub-periods firms giving better performance, with reference to the same benchmarks, borrow more. Several factors can be attributed this finding such as high risk premium to the equity investments due to adverse equity investment climate, falling interest rates during the financial crisis and increasing non-performing assets accumulated with banks. The current paper contributes to the body of knowledge, both academic and practitioners, in several ways. First, the study identifies the key determinants affecting capital structure in the pre, during and post financial crisis sub-periods and thus portraying a comprehensive and in-depth picture. Second, the study explores how the capital structure affects the risk and weighted average cost of capital (WACC).

Suggested Citation

  • Shab Hundal & Annika Sandstrom & Assel Uskumbayeva, 2018. "The Impact Of The Financial Crisis On Corporate Capital Structure Dynamics In The Nordic Countries," Eurasian Journal of Economics and Finance, Eurasian Publications, vol. 6(3), pages 34-51.
  • Handle: RePEc:ejn:ejefjr:v:6:y:2018:i:3:p:34-51

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Titman, Sheridan & Wessels, Roberto, 1988. " The Determinants of Capital Structure Choice," Journal of Finance, American Finance Association, vol. 43(1), pages 1-19, March.
    2. Nikolaos Eriotis & Dimitrios Vasiliou & Zoe Ventoura-Neokosmidi, 2007. "How firm characteristics affect capital structure: an empirical study," Managerial Finance, Emerald Group Publishing, vol. 33(5), pages 321-331, April.
    3. Huang, Guihai & Song, Frank M., 2006. "The determinants of capital structure: Evidence from China," China Economic Review, Elsevier, vol. 17(1), pages 14-36.
    4. Friend, Irwin & Lang, Larry H P, 1988. " An Empirical Test of the Impact of Managerial Self-interest on Corporate Capital Structure," Journal of Finance, American Finance Association, vol. 43(2), pages 271-281, June.
    5. Harris, Milton & Raviv, Artur, 1991. "The Theory of Capital Structure," Journal of Finance, American Finance Association, vol. 46(1), pages 297-355, March.
    6. Abe de Jong & Patrick Verwijmeren, 2010. "To have a target debt ratio or not: what difference does it make?," Applied Financial Economics, Taylor & Francis Journals, vol. 20(3), pages 219-226.
    7. Costas Lambrinoudakis, 2016. "Adjustment Cost Determinants and Target Capital Structure," Multinational Finance Journal, Multinational Finance Journal, vol. 20(1), pages 1-39, March.
    8. Douglas W. Diamond, 2004. "Presidential Address, Committing to Commit: Short-term Debt When Enforcement Is Costly," Journal of Finance, American Finance Association, vol. 59(4), pages 1447-1479, August.
    9. Chen, Linda H. & Lensink, Robert & Sterken, Elmer, 1999. "The determinants of capital structure: evidence from Dutch panel data," Research Report 99E14, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
    10. Campbell, John Y & Viceira, Luis M, 2005. "The Term Structure of the Risk-Return Tradeoff," CEPR Discussion Papers 4914, C.E.P.R. Discussion Papers.
    11. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    12. Dick, Christian D. & Schmeling, Maik & Schrimpf, Andreas, 2013. "Macro-expectations, aggregate uncertainty, and expected term premia," European Economic Review, Elsevier, vol. 58(C), pages 58-80.
    13. Myers, Stewart C., 1984. "Capital structure puzzle," Working papers 1548-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    14. Aguilera, Ruth V. & Crespi-Cladera, Rafel, 2016. "Global corporate governance: On the relevance of firms’ ownership structure," Journal of World Business, Elsevier, vol. 51(1), pages 50-57.
    15. Myers, Stewart C, 1984. "The Capital Structure Puzzle," Journal of Finance, American Finance Association, vol. 39(3), pages 575-592, July.
    16. repec:dgr:rugsom:99e14 is not listed on IDEAS
    17. Sreedhar T. Bharath & Paolo Pasquariello & Guojun Wu, 2009. "Does Asymmetric Information Drive Capital Structure Decisions?," Review of Financial Studies, Society for Financial Studies, vol. 22(8), pages 3211-3243, August.
    18. Stewart C. Myers, 1984. "Capital Structure Puzzle," NBER Working Papers 1393, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ejn:ejefjr:v:6:y:2018:i:3:p:34-51. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.