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Firm performance and (foreign) debt financing before and during the global financial crisis: evidence from firm-level data

Author

Listed:
  • Uroš Herman

    (Aix-Marseille University
    French National Centre for Scientific Research)

  • Andreja Lenarčič

    (International Monetary Fund)

  • Mateja Gabrijelčič

    (Independent Researcher)

Abstract

We examine the impact of financial leverage and foreign financing on firm performance using a large panel of Slovenian firms, before and during the Global Financial Crisis. We find a significant negative effect of leverage on firm performance, even after explicitly controlling for reverse causality, with this effect persisting but weakening during the crisis. Before the crisis, firms that borrowed abroad performed better, although the marginal cost of additional leverage was higher when borrowing abroad. When explicitly controlling for the amount of foreign financing, we find a positive and highly significant effect on firm performance in the pre-crisis period. The positive effect of foreign borrowing is concentrated in privately owned firms (and negative for state-owned firms), and it holds for both domestically and foreign-owned firms. During the crisis, the effect of foreign financing is attenuated and largely insignificant across specifications.

Suggested Citation

  • Uroš Herman & Andreja Lenarčič & Mateja Gabrijelčič, 2025. "Firm performance and (foreign) debt financing before and during the global financial crisis: evidence from firm-level data," Risk Management, Palgrave Macmillan, vol. 27(4), pages 1-35, December.
    • Handle: RePEc:pal:risman:v:27:y:2025:i:4:d:10.1057_s41283-025-00170-y
    DOI: 10.1057/s41283-025-00170-y
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    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C36 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Instrumental Variables (IV) Estimation
    • 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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