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Leverage and performance: do size and crisis matter?

Albert Danso (Accounting and Finance, De Montfort University, Leicester, UK)
Theophilus A. Lartey (Accounting and Finance, De Montfort University, Leicester, UK)
Daniel Gyimah (Accounting and Finance, University of Aberdeen Business School, Aberdeen, UK)
Emmanuel Adu-Ameyaw (Faculty of Business and Law, Liverpool John Moores University, Liverpool, UK)

Managerial Finance

ISSN: 0307-4358

Article publication date: 11 November 2020

Issue publication date: 22 April 2021




This paper contributes to the capital structure literature by examining the impact of financial leverage on firm performance and also the extent to which firm size and crisis matter in the leverage -performance relationship.


Using data from 2403 Indian firms during the period 1995–2014, generating a total of 19,544 firm-year observations, panel econometric methods are employed to test the leverage-performance relationship.


Drawing insights from agency theory and using Tobin's Q (TQ) as our main measure of performance, the authors uncover that financial leverage is negatively and significantly related to firm performance. The authors also observe that the impact of financial leverage on firm performance is lower for smaller firms than larger ones. Finally, the authors show that the 2007/08 financial crisis had no significant impact on the relationship between financial leverage and firm performance.


The paper provides fresh evidence on the impact of leverage on performance, particularly from the Indian context. This study is also among the first studies to examine the role of firm size and financial crisis in the leverage-performance relationship.



Danso, A., Lartey, T.A., Gyimah, D. and Adu-Ameyaw, E. (2021), "Leverage and performance: do size and crisis matter?", Managerial Finance, Vol. 47 No. 5, pp. 635-655.



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