Effects of Leverage and Corporate Governance on Firm Performance during the Global Crisis

In our research, we examined the impact of leverage changes on the company performance depending on the quality of corporate governance during the crisis. Performed analisis was based on 880 non-financial companies from developed markets during the Global financial crisis of 2007 - 2009. We have received contradictory results. We form the main conclusion from obtained results, that leverage reduces the effect of corporate governance on the companies' stock returns, i.e. with higher level of debt the company response on corporate governance is more negative ceteris paribus. In the case of abnormal stock returns leverage magnifies this effect, because the effect of corporate governance is also negative. The only robust result which we can distinguish is that interaction term of leverage and corporate governance has a negtive effect on stock returns as well as on abnormal stock returns, being significant.