Industry and Financial Crises in Fragile and Zombie Firms : Does Leverage Matter?

Objective – This paper shows how leverage affects firm's fragility and financial soundness during financial and industry crises.Methodology/Technique – Long term inefficient and zombie firms are explored through the effects of leverage in additional tests.Findings – There are two main results obtained from the sample of Indonesian non-financial firms from 2007 to 2016. First, leverage has a statistically significant correlation with firm's fragility. Second, leverage has an effect on firm's financial soundness during industry crisis.Novelty – Unlike the previous paper, this paper demonstrates a significant implication on the need to differentiate fragile firms and firms that are persistently inefficient, such as zombie firms.Type of Paper: Empirical