Capital structure and firm performance: evidence from FTSE all-share firms during Covid-19

Abstract

We examine how capital structure related to firm performance for UK companies in the FTSE All-Share over 2018–2023, explicitly segmenting pre-pandemic (2018–2019), pandemic (2020–2021), and post-pandemic (2022–2023) periods. Using Bloomberg data for 516 firms and panel fixed-effects models (Hausman-tested), we assess the impact of short- and long-term leverage on ROA, ROCE, Tobin’s Q, and EPS, and compare financial versus non-financial firms. Leverage is, on average, negatively associated with ROA and EPS, consistent with pecking-order and agency-cost arguments: market-based outcomes (Tobin’s Q) show weaker, nuanced links. The adverse effects of debt are stronger for non-financial firms, particularly during and after COVID-19, while financial firms display a post-COVID positive association between short-term debt and ROA, suggesting sector-specific debt utilization under stress. Firm size relates negatively to Tobin’s Q for non-financials. Results highlight how crisis conditions and industry characteristics shape the leverage–performance nexus, offering practical guidance for managers and policymakers on capital structure decisions in turbulent environments.

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Copyright © 2025 by the authors. Licensee MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (https://creativecommons.org/licenses/by/4.0/).

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DOI

https://doi.org/10.3390/jrfm18110648

Repository URI

https://hdl.handle.net/10023/33186