Question

Please explain about the seven impact of the financial crisis on the capital structure decision of UK , French and German firms.

Answer 1

Ans-1.The sample period is segregated into three periods of interest: 2006-2007 as pre-crisis period, 2008-2009
as the crisis period, and 2010-2011 as the post-crisis period.The results show that overall leverage ratios increase from pre-crisis (2006 and 2007) to crisis (2008 and 2009) years and then decrease in the post-crisis (2010 and 2011) years.
2.Both equity and debt levels change during the crisis and post-crisis years.
3.The findings further reveal that firms with lower than industry average capital structure ratios in the pre-crisis period experience a gradual increase in their leverage during crisis and post-crisis periods.
4. However, firms with higher than industry average capital structure ratios in the pre-crisis periods experience a significant decrease in the leverage ratios particularly in the post-crisis period mainly due to changes in their equity levels.

5. Also the aggressive firms indicate that overall the leverage ratios in the post-crisis period are significantly lower than their pre-crisis levels across the three countries.
6. While this decrease is more pronounced from the crisis to post-crisis period for French and German aggressive sub-samples, the leverage ratios for UK subsample have significantly and gradually fallen from pre- to crisis and then in post-crisis period.
7. This gradual decline is mainly due to the significant reduction in equity levels across the three periods. Additionally, t-test results indicate a significant increase in debt (though lower than the increase in equity) for UK aggressive subsample from pre- to crisis period.

Thanks and please upvoted!!