THE USE OF FINANCIAL LEVERAGE OF CORPORATIONS AND IT’S EFFECTS ON RECESSION

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At the microeconomic level the cost of excessive borrowing can result in the company being driven into bankcruptcy, while at the macro level, the result can lead to a continuation or change of business cycle. Considering business life is organized around the business enterprises, acceleration and deceleration in economic activities are results of firm’s investment and spending decision.The main topic of this study, determining if one of the factors that triggered the crisis and the recession was a companies tendency forward excessive borrowing during periods where the economy was overheating. Results show a strong relation between recession and leverage ratios; such as Equity to Total Assets and Debt to Equity. In summary, it is concluded that the increase or decrease of firm’s indebtness give strong hints regarding the next period of the economic trend and output.

209

Business Cycle , Crisis , Forecasting , Indebtedness , Leverage

Journal Of Financial Researches an‎d Studies

227

Journal Of Financial Researches an‎d Studies