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Leverage and performance: Do size and crisis matter?

Danso, Albert; Lartey, Theophilus A.; Gyimah, Daniel; Adu-Ameyaw, Emmanuel


Albert Danso

Theophilus A. Lartey

Daniel Gyimah

Emmanuel Adu-Ameyaw


Purpose: 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. Design/methodology/approach: 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. Findings: 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. Originality/value: 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., & Adu-Ameyaw, E. (2021). Leverage and performance: Do size and crisis matter?. Managerial Finance, 47(5), 635-655.

Journal Article Type Article
Acceptance Date Sep 25, 2020
Online Publication Date Nov 11, 2020
Publication Date Apr 22, 2021
Deposit Date Apr 23, 2021
Journal Managerial Finance
Print ISSN 0307-4358
Electronic ISSN 1758-7743
Publisher Emerald
Peer Reviewed Peer Reviewed
Volume 47
Issue 5
Pages 635-655
Keywords Strategy and Management; Finance
Public URL