An Analysis of Financing Decisions and Their Influence on a Companys’ Performance: An Empirical Study of the European Support Services Sector and ISS A/S

Sebastian Koefoed & Jamie Heinrichson

Student thesis: Master thesis


For several decades, numerous studies have been conducted to find sources and explanations for firms’ capital structure choices, hence it’s considered a saturated study area. Thus corporate finance literature also predicts a significant influence on firm performance, the connection has yet to be completely studied. Therefore, the impact of financing decision on firm performance has recently been of great interest to economists.
This thesis investigates the financing decisions within the European Support Service sector, and aim to locate the influence on firm performance. The conclusions will then be challenged through a case study based on ISS A/S.
The analyzed sector is defined using the Industry Classification Benchmark (ICB) and consists of 200 listed companies from the main European Stock exchanges. The timeframe is limited to 20 years, which naturally includes some extreme outliers. The outliers are compensated using the Winsorization approach. To reveal the relation between the financing decisions and firm performance a Time and Entity Fixed effect multiple regression model is applied. This approach is needed as the financial data is correlated within each year and company, which requires a statistical correction.
The empirical study consists of 4 dependent variables, 8 financing variables and 2 control variables. The study mainly finds that data on the European Support Services sector are consistent with the theory, and the results are statistically significant, economically significant, and robust. However, there are no significant findings on non-debt tax shield, financial deficit is supported statistically but economically insignificant, and firm size contradicts the theory. Lastly, the findings on leverage supports the trade-off theory.
Through the case study it’s concluded that the relations from the main analysis in general isn’t reproduced. As the case study is none supportive it could be argued that the hypothesis from the main analysis should be rejected. The thesis concludes that the main analysis should be revamped in order to be of a more representative character. This includes having variables explaining crucial external factors of the financial market.

EducationsMSc in Finance and Accounting, (Graduate Programme) Final Thesis
Publication date2016
Number of pages189