Examining the Effects of Economic Crises on Firm Leverage: Insights from Financial Institutions and Information Technology Companies Listed on the Swedish Stock Markets

Sammanfattning: Numerous studies have examined factors influencing a company's capital structure, but most focus on non-financial firms and neglect the distinct characteristics of financial institutions. Furthermore, little research exists on the Swedish financial and information technology markets despite their special market conditions, important global position and unique capital structures of their belonging companies. The research of these markets moreover frequently overlooks the effect of economic crises such as the 2007-2009 financial crisis and the ongoing Covid-19 pandemic on company capital structure and its determinants. To address this research gap, we aim to investigate how the 2007-2009 financial crisis and the Covid-19 pandemic have affected the capital structure of Swedish listed financial institutions and information technology companies. Using fixed and random effects regression estimators on unbalanced panel datasets, we find that financial institutions are more sensitive to the 2007-2009 financial crisis than information technology companies, which did not experience significant capital structure effects. Financial institutions experience increased short-term debt to equity and decreased long-term debt to equity, influenced by changes in cash and equivalents, company size, and the policy rate. During the Covid-19 pandemic, financial institutions experience pro-cyclical capital structure effects – measured as total debt to equity – due to changes in cash and equivalents, company size, and the policy rate. In contrast, information technology companies experience counter-cyclical capital structure effects driven by changes in company size, profitability, and GDP growth. This thesis contributes to existing research by providing valuable insights into how past and current economic crises affect Swedish listed financial institutions and information technology companies, enabling both managers, investors, policymakers and researchers to better appreciate the consequences of economic uncertainty on firms’ capital structure.