Impact of Financial Crisis on Firms’ Capital Structure in UK, France, and Germany

Abstract

This study examines the impact of the recent financial crisis on the capital structure decision of UK, French and German firms. 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. Both equity and debt levels change during the crisis and post-crisis years. 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. 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.