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Are highly leveraged firms more sensitive to an economic downturn?

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  • Hossein Asgharian

Abstract

The paper tests the hypothesis that highly leveraged firms lose market shares to their less leveraged rivals in an industry downturn. Both parametric and semiparametric regression methods are applied to analyse the relationships between firm performance and leverage. It is found that the highly leveraged firms in distressed industries face relatively lower sales growth and stock returns but are still able to retain a relatively higher growth in profitability. The findings may suggest that the decline in sales of the highly leveraged firms might be a result of managers' preferences to decrease the activity of product lines with low profitability.

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  • Hossein Asgharian, 2003. "Are highly leveraged firms more sensitive to an economic downturn?," The European Journal of Finance, Taylor & Francis Journals, vol. 9(3), pages 219-241.
    • Handle: RePEc:taf:eurjfi:v:9:y:2003:i:3:p:219-241
    DOI: 10.1080/13518470210132381
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    Cited by:

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    4. M. A. Lagesh & Maram Srikanth & Debashis Acharya, 2018. "Corporate Performance during Business Cycles: Evidence from Indian Manufacturing Firms," Global Business Review, International Management Institute, vol. 19(5), pages 1261-1274, October.
    5. Konstantinos S. Skandalis & Panagiotis G. Liargovas & Anna A. Merika, 2008. "Firm Management Competence: Does It Matter?," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 7(2), pages 167-180, August.
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    7. Carmen Corduneanu & Laura Raisa MiloÅŸ, 2009. "Empirical Evidence On The Influence Of Stakeholder Theory Upon The Capital Structure Of Romanian Companies," Annales Universitatis Apulensis Series Oeconomica, Faculty of Sciences, "1 Decembrie 1918" University, Alba Iulia, vol. 1(11), pages 1-39.
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