Capital Structure and Firm Performance: Evidence from European Listed Companies

This thesis investigates whether deviations from industry-specific optimal leverage affect the performance of European listed firms. Based on a panel of STOXX Europe 600 companies from 2015 to 2024, optimal leverage is defined as the sector-year median, and firms’ deviations are examined through Tobin’s Q and ROA. Panel regressions show that over-leveraged firms consistently exhibit lower market valuation and weaker future performance, while under-leverage is not penalized. The magnitude of deviation matters less than its direction. During the COVID-19 crisis, policy interventions temporarily softened these effects. Findings highlight the importance of relative leverage alignment in shaping firm performance.