The impact of 2008 crisis on U.S. firms’ leverage

: difference in difference approach investment grade vs speculative grade firms

Abstract

The dissertation evaluates the impact of the 2008 Financial Crisis on the US firms’ leverage proportions to Capital and to Total Assets: mainly the Debt to Capital ratio [Total Debt / (Total Debt + Market Value of Equity)] and the Debt ratio [Total Debt / Total Assets]. The analysis is based on a Difference-in-Differences Approach that builds a comparison analysis of the effect of the 2008 market collapse on two groups: Treated and Control groups based on their latest credit rating prior the crisis. After the crisis of 2008, the Debt to Capital ratio and the Debt ratio decreased on average respectively by 3.38 percentage points and 1.21 percentage points. The Treated group (Investment Grade firms) holds lower leverage ratios (Debt to Capital and Debt ratios) on average than the Control group (Speculative grade), and in the post crisis period. As for control variables: liquidity, profitability, and Size controls, they present a negative correlation to both leverage ratios.

Date of Award	3 May 2022
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Mário Meira (Supervisor)