Capital structure and firm performance -A study of Swedish public companies

Abstract

Capital structure and firm performance –

A study of Swedish public companies

Bachelor’s thesis Business Administration, Handelshögskolan Göteborgs Universitet, Accounting, Spring 14

Authors: Richard Dumont and Robert Svensson Supervisor: Johan Åkesson

Title: Capital structure and firm performance – A study of Swedish public companies

Background and problem: Developments in capital structure during the last 30 years have resulted in a number of capital structure theories. At the same time, and in spite of all research on the topic, capital structure policies were one of the reasons for many company problems when the financial crisis hit in 2008. It is therefore interesting to look at how capital structure has evolved in the last decade as well as to test the functional relationship between capital structure and firm performance on a large scale.

Purpose: To map and explain the development of capital structure and firm performance in Swedish companies during the last decade.

Limitations: The thesis will only focus on companies listed on the Swedish stock exchange and with yearly sales amounting to at least SEK 10m.

Method: A large-scale quantitative cross-sectional study including some 300 Swedish companies and 8 years of financial statements data. Relationships have been tested with a multiple regression model and developments of financial data have been tracked and compared over an 8-year period.

Results and conclusions: There is a negative relationship between debt-to-equity and return on equity for Swedish firms during 2005-2012. Companies can thereby increase their return on equity by decreasing their debt-to-equity levels.

Further research: A study of optimal capital structure for Swedish firms, using the latest developments in capital structure theory and using similar data as in this study.