Financial Distress and Capital Structure Adjustment: Evidence from Denmark and Sweden
Author
Term
4. semester
Publication year
2025
Submitted on
2025-10-15
Pages
48
Abstract
The thesis aims to understand how loss-making firms adjust their capital structure compared to consistently profitable firms. This thesis use evidence from publicly listed firms in Denmark and Sweden from the year of 2010 to 2025. It explores whether periods of negative net income push firm to increase or decrease leverage along with some other firm specific characteristics; such as, firm size, profitability, tangibility, business risk and a macro level volatility like Covid-19 shock. Around 6,000 firm-year observation were used to identify the key determinants of leverage decision. The empirical findings reveal that loss-making firms significantly increase their debt levels while firm size and asset tangibility are also positively associated with leverage, consistent with the trade-off theory. In contrast, business risk and the COVID-19 shock have limited explanatory power. The subset results also verify the main findings. Overall, the firm-specific characteristics’ dominant role in shaping leverage decision give insights to investors, managers, and regulators aiming to understand the determinants of leverage in Nordic context.
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