Capital Structure and Firm Performance: Did the Financial Crisis Matter? : A cross-industry study

Abstract: Previous research confirms the remarkable change in firms’ capital structure when the financial crisis took place in 2008. This paper examines if the financial crisis affected the capital structure in various industries differently. In the context of a financial shock, this study further studies whether the industries’ chosen capital structure even have an impact on firms’ performance, a research area that yields inconsistent answers. Using two panel data regressions and long-term and short-term debt as proxies for capital structure, we study listed US firms within the industries Consumer Goods, Consumer Services, Healthcare, Industrials and Technology before and during the financial crisis in 2008. The findings show that the capital structure changed differently among the industries and we find a significant effect of the crisis in the Consumer Services and Healthcare industry. In addition, our results indicate that the impact of capital structure on firm performance is industry-specific as well. We find statistically supported relations in the Consumer Services, Healthcare and Technology industry. By proving that the financial crisis did matter differently in various industries, this study contributes to the existing literature within the area of capital structure and its impact on firm performance.