Equity buffers and financial resilience: How capital structure relates to profitability and financial resilience among Swedish logging contractors

Logging contractors (LCs) in Sweden operate in a capital-intensive industry under volatile market and sustainability pressures. This study investigates how capital structure relates to profitability and financial resilience among Swedish LCs, examining the interplay between equity-debt financing, operational risk, and performance over time. Using fixed-effects panel regression on firm-year data from 2014 to 2023, covering the full population of approximately 900 Swedish LCs, we analyze how leverage and equity ratios influence profitability under varying risk conditions. The findings reveal that LC profitability rose while leverage declined during this period, indicating stronger balance sheets. Critically, low-leverage LCs earned substantially higher operational profitability in high-risk years, whereas highly leveraged LCs consistently underperformed regardless of market conditions. This asymmetric effect suggests that debt operates as a persistent constraint rather than a symmetric risk-return trade-off. Strong equity buffers emerge as crucial for financial resilience, enabling LCs to absorb volatility and maintain strategic flexibility, particularly important as the industry transitions toward fossil-free operations requiring substantial capital investments. These results provide empirical evidence linking capital structure to financial resilience in the harvesting industry, offering actionable insights for banks, contractors, policymakers, and industry bodies seeking to support sustainable development and long-term stability in the forestry sector.