Firm Performance and (Foreign) Debt Financing before and during the Crisis: Evidence from Firm-Level Data

41 Pages Posted: 11 Oct 2013 Last revised: 19 Apr 2017

See all articles by Mateja Gabrijelcic

Mateja Gabrijelcic

Bank of Slovenia

Uros Herman

Goethe University Frankfurt, House of Finance (HoF), Graduate School of Economics, Finance and Management (GSEFM), Students

Andreja Lenarcic

European Stability Mechanism; European Stability Mechanism

Multiple version iconThere are 2 versions of this paper

Date Written: July 13, 2016

Abstract

We study the effects of financial leverage and foreign financing on firm performance before and during the recent crisis, using a large panel of Slovenian companies. We find a significant negative impact of leverage on firm performance, even when we explicitly control for the reverse causality between the two variables. The negative effect, albeit weaker, persists also in the crisis period. Firms with some foreign debt performed better on average than firms relying only on domestic financing. At the same time, they suffered a stronger decrease in performance if their total leverage increased. Moreover, when we explicitly control for the amount of foreign financing, we find that it has a positive and highly significant effect on firm performance. The significant positive effect of foreign financing in the pre-crisis period seems to be entirely driven by privately owned firms, while the effects are negative for the state owned companies. During the crisis the effects are positive but insignificant for both ownership types. Finally, when comparing domestic and foreign owned firms, we see no substantial variation in the coefficients.

Keywords: Leverage, foreign leverage, firm performance, instrumental variable, panel data, crisis

JEL Classification: C33, C36, G32

Suggested Citation

Gabrijelcic, Mateja and Herman, Uros and Lenarcic, Andreja, Firm Performance and (Foreign) Debt Financing before and during the Crisis: Evidence from Firm-Level Data (July 13, 2016). European Stability Mechanism Research Paper No. 15. Available at SSRN: https://ssrn.com/abstract=2338637 or http://dx.doi.org/10.2139/ssrn.2338637

Mateja Gabrijelcic

Bank of Slovenia ( email )

Slovenska cesta 35
Slovenija, 1505
Slovenia

Uros Herman (Contact Author)

Goethe University Frankfurt, House of Finance (HoF), Graduate School of Economics, Finance and Management (GSEFM), Students ( email )

Grüneburgplatz 1
Frankfurt
Germany

Andreja Lenarcic

European Stability Mechanism ( email )

6a, 6a, Circuit de la Foire Internationale
Luxembourg, Luxembourg 1347
Luxembourg

European Stability Mechanism ( email )

6a, 6a, Circuit de la Foire Internationale
Luxembourg, Luxembourg 1347
Luxembourg

Register to save articles to
your library

Register

Paper statistics

Downloads
250
rank
109,463
Abstract Views
1,017
PlumX Metrics