The impact of the global financial crisis and European debt crisis on the capital structure of firms in Europe

Abstract

This study investigates the impact of the global financial crisis and the European sovereign debt crisis on the capital structure decisions of firms in Europe. Focusing on small and medium-sized enterprises (SMEs), listed firms, and private firms across various industries, the research examines how these crises influenced leverage ratios, debt maturity structures, and financing choices. Using a comprehensive firm-level dataset comprising over 1.2 million observations from approximately 159,000 European companies across 38 countries over the period 2004–2020, the study employs empirical regression models to analyze the relationship between financial crises and firms’ capital structure adjustments. The findings reveal heterogeneous responses across firm types, with SMEs and unlisted firms exhibiting more pronounced deleveraging behavior compared to listed and large firms during crisis periods. Additionally, firms tend to increase the maturity of their debt portfolios during times of financial instability, particularly in bank-dependent economies. The study also highlights the moderating role of country-level institutional and financial development factors in shaping firms’ financing decisions during periods of economic distress. Overall, the results contribute to the literature on capital structure dynamics by providing new empirical evidence on how major financial crises affect European firms and offer policy-relevant insights aimed at enhancing corporate financial resilience and stability.