Capital structure and firm performance: evidence of Germany under IFRS adoption

Hariem Abdullah and Turgut Türsoy

Review of Managerial Science, 2021, vol. 15, issue 2, No 8, 379-398

Abstract: Abstract This paper is an attempt to empirically examine the relationship between firm performance and capital structure. The study sample consists of the non-financial firms listed in Germany during the period 1993–2016. The European stock market transition to IFRS in 2005 is also considered as a shifting point that might have influenced the extent of the relationship. We observed that more than 60% of the total assets of German non-financial firms are financed through debt, i.e. they are highly levered compare to similar countries. The results confirm a positive relationship between firm performance and capital structure. We also found that IFRS adoption has led to increased firm performance of our sample, whereas it weakened the relationship between capital structure and firm performance. One plausible explanation for the positive association between capital structure and firm performance is the benefits of the tax shield and the lower costs of issuing debt compared to equity.

Keywords: Capital structure; Firm performance; IFRS; Non-financial listed firms; Germany (search for similar items in EconPapers)
JEL-codes: C33 G30 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (19)

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DOI: 10.1007/s11846-019-00344-5

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