FINANCIAL LEVERAGE AND FIRM PERFORMANCE DURING AND AFTER THE FINANCIAL CRISIS

The objective of this paper is to analyse the relation between a company’sleverage and its performance during the financial crisis of 2007-­2009. A hypothesisis proposed that leverage would negatively impact abnormal return during thefinancial crisis. Interestingly, it is found that, at the peak of the crisis, during 2008,firms with higher leverage performed better. The opposite effect is found in 2009,when firms with high leverage under-­performed. These results seem somewhatcounter-­intuitive, so that after taking into account industry effects the resultsindicate that leverage had a negative effect on companies’ performance during the2008-­2009 period.