Capital Structure and Firm Performance: Evidence from FTSE All-Share Firms During COVID-19

Saruchi Jaiswal and Mahmoud Elmarzouky ()
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Saruchi Jaiswal: Kingston Business School, Kingston University, Kingston-upon-Thames, London KT2 7JB, UK
Mahmoud Elmarzouky: St Andrews Business School, University of St Andrews, The Gateway, North Haugh, St Andrews KY16 9RJ, UK

JRFM, 2025, vol. 18, issue 11, 1-31

Abstract: We examine how capital structure related to firm performance for UK companies in the FTSE All-Share over 2018–2023, explicitly segmenting pre-pandemic (2018–2019), pandemic (2020–2021), and post-pandemic (2022–2023) periods. Using Bloomberg data for 516 firms and panel fixed-effects models (Hausman-tested), we assess the impact of short- and long-term leverage on ROA, ROCE, Tobin’s Q, and EPS, and compare financial versus non-financial firms. Leverage is, on average, negatively associated with ROA and EPS, consistent with pecking-order and agency-cost arguments: market-based outcomes (Tobin’s Q) show weaker, nuanced links. The adverse effects of debt are stronger for non-financial firms, particularly during and after COVID-19, while financial firms display a post-COVID positive association between short-term debt and ROA, suggesting sector-specific debt utilization under stress. Firm size relates negatively to Tobin’s Q for non-financials. Results highlight how crisis conditions and industry characteristics shape the leverage–performance nexus, offering practical guidance for managers and policymakers on capital structure decisions in turbulent environments.

Keywords: capital structure; leverage; firm performance; FTSE all-share; UK; COVID-19 (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2025
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