THE EFFECTS OF THE 2008 FINANCIAL CRISIS AND ITS AFTERMATH ON FIRMS’ CAPITAL STRUCTURE DETERMINANTS IN FINLAND AND SWEDEN

Abstract

This study examines the capital structure determinants of Finnish and Swedish exchange listed firms over the period of 2003 to 2013. The study’s main contribution to the capital structure research is to find whether economic crisis and its aftermath can have an effect on capital structure determinants. Main hypothesis of the study is, that the financial crisis that begun in 2008 has made firms more risk averse, hence more conservative to use leverage. The study also examines if this after the crisis risk aversion is more strongly present in Finland, since Finland’s recovery from the crisis has been slower compared to Sweden.

In the empirical part, first four variables generally known to correlate with leverage ratios are regressed. The regressions in this study are always done to two independent variables, and the regression model is always fixed effects ordinary least squares (OLS). Second, t-test is applied to test for the difference in mean of the pre-crisis and post-crisis variables. After that, data is divided into two sub-samples: pre-crisis and post-crisis. And then, regression analysis is ran separately for the both sub-samples. Third, t-test is applied to test for the difference in mean of the pre-crisis and post-crisis variables in Finland and for the difference in mean of the pre-crisis and post-crisis variables in Sweden. Then, data is divided into four sub-samples: pre-crisis Finland, post-crisis Finland, pre-crisis Sweden and post-crisis Sweden. After the separation, regression analysis is ran separately for all of the four sub samples.

In the study it is found that that the financial turmoil that began in the 2008 financial crisis, has affected firms capital structure choices. Probably the key finding of the study is, that larger firms, that are generally thought to be less riskier, seem to use relatively more debt financing in the post-crisis period in six out of six regressions ran in this study. Another main finding of the study is that the capital structure determinant variable coefficient means seem to be affected considerably more by the crisis and its backwash in Finland than in Sweden. This would suggest that because of the crisis had stronger effect on Finnish economy, it would also have had stronger effect on its capital structure determinants.