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

Uroš Herman (), Andreja Lenarčič () and Mateja Gabrijelčič ()
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Uroš Herman: Aix-Marseille University
Andreja Lenarčič: International Monetary Fund
Mateja Gabrijelčič: Independent Researcher

Risk Management, 2025, vol. 27, issue 4, No 6, 35 pages

Abstract: 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.

Keywords: Leverage; Foreign leverage; Global Financial Crisis; Firm performance; Panel data (search for similar items in EconPapers)
JEL-codes: C33 C36 G32 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1057/s41283-025-00170-y

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