Capital structure and global financial crisis: The case of non-financial firms in Netherlands

ABSTRACT: This study aims to run an empirical analysis on the capital structure of firms included in one of the most important indices, EURONEXT NV in the Netherlands. The firms are ranked by their market capitalization in 2012. The overall period chosen for this study is 8 years from 2004 to 2011. It also investigates the important period of global financial crisis in 2008. Several theories are used here to realize the capital structure of firms in Netherlands. Since the data is a merge of time series and cross sections, in terms of methodology, panel data is used. The dependent variables are total debt, short term debt and long term ratio. Independent variables are profitability, liquidity, non-debt tax shield, size and tangibility. Regression results state that, profitability had negative relationship, while size and tangibility could positively influence the total debt ratio before crisis. On the other hand, during the crisis growth and liquidity reported to have positive relationship, while profitability had negative impact on total debt ratio. In terms of long term debt ratio before crisis size, tangibility and growth had positive effect, whereas during crisis growth, liquidity, size and tangibility had positive effect, and profitability had negative impact on total long term debt ratio. Before crisis profitability and liquidity were negatively correlated to short term debt, while after crisis size, tangibility positively, non-debt tax shield and liquidity negatively affected the short term debt ratio. This study has clearly shown that selected firms preferred to use long term debt rather than short term debt during those years. Also, it states that especially liquidity has become an important variable for leverage after the crisis. Keywords: Capital Structure, Global Financial crisis, Liquidity