Capital Structure, Firm Performance and the Recent Financial Crisis

Abstract

We examine the impact of financial leverage on firm performance. By analyzing stock and operating performances of top ten Canadian oil & gas companies for a ten year period (2004-2013), we find that leverage has a strong negative relationship with performance, for all three periods in concern, that is the pre-crisis (2004-2006), crisis (2007-2009), and post-crisis recovery (2010-2013) periods. These results hold both in univariate and cross-sectional set up even after controlling for firm specific variables