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

Mateja Gabrijelčič, Uroš Herman and Andreja Lenarčič ()
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Mateja Gabrijelčič: Bank of Slovenia
Uroš Herman: GSEFM, Goethe University, Frankfurt

Working Papers from European Stability Mechanism

Abstract: This paper studies 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 (search for similar items in EconPapers)
JEL-codes: F34 G15 G24 H63 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-eff, nep-ifn and nep-tra
Date: 2016-07-15
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