Copyright (c) 2025 Ahsanullah Barakzai, Hatice DOĞUKANLI

This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
Impact of Capital Structure on Firms Performance: Evidence From Sample Nests Emerging Countries
Corresponding Author(s) : Ahsanullah Barakzai
Journal of Social Sciences and Humanities,
Vol. 2 No. 3 (2025): July
Abstract
Making correct and effective decisions on the capital structure by influencing capital costs can play an important role in improving the company's performance and increasing its value. Therefore, companies considering the capital structure important, by using an effective combination of financing sources, seek to achieve their main goals, which is to maximize the value of the company. This study aims to investigate the impact of capital structure on the performance of companies operating in the five sample NEST emerging countries (Poland, Thailand, Sri Lanka, Saudi Arabia, and Chile) throughout 2010-2019. In this study, a multiple regression model has been used to examine the effects of high financial leverage on company performance. In this paper for defining the capital structure each of the short-term debt (STD) and long-term debt (LTD) indicators and for the operating performance of mentioned companies, each of the indicators of return on asset (ROA), return on equity (ROE), and earnings before interest, tax, depreciation, and amortization (EBITDA) margin have been used. The findings of this study show that the financial leverage and performance of these companies in all sample NEST emerging countries are negatively associated; any increase in the level of debt in the capital structure of these companies causes damage to their operating performance and lowers the value of mentioned firms.
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- Abor, J. (2007). Corporate governance and financing decisions of Ghanaian listed firms. Corporate Governance: The International Journal of Business in Society, 7(1), 83–92. https://doi.org/10.1108/14720700710727131 DOI: https://doi.org/10.1108/14720700710727131
- Allen, M. (Ed.). (2017). The SAGE encyclopedia of communication research methods. SAGE DOI: https://doi.org/10.4135/9781483381411
- publications. Link
- Baker, M., & Wurgler, J. (2002). Market timing and capital structure. The Journal of Finance, 57(1), 1–32. https://doi.org/10.1111/1540-6261.00414 DOI: https://doi.org/10.1111/1540-6261.00414
- Chandrasiri, R. P. I. S., Dilhara, P. K. T., Gunawardena, Kulathilaka, Lishantha., Liyanage, R. S., & Wijesekara. (n.d.). The impact of capital structure on performance of Sri Lankan companies. Link
- Das, C. P., & Swain, R. K. (2018). Influence of capital structure on firm performance. Parikalpana: KIIT Journal of Management, 14(1), 87–96. https://doi.org/ 10.23862/kiit-parikalpana/2018/v14/i1/173256. DOI: https://doi.org/10.23862/kiit-parikalpana/2018/v14/i1/173256
- Detthamrong, U., Chancharat, N., & Vithessonthi, C. (2017). Corporate governance, capital structure and firm performance: Evidence from Thailand. Research in International Business and Finance, 42, 689–709. https://doi.org/10.1016/j.ribaf.2017.07.011 DOI: https://doi.org/10.1016/j.ribaf.2017.07.011
- Domnick, C. H. (2018). Influence of capital structure on firm’s financial performance: An inter-industry investigation of German listed firms (Bachelor’s thesis, University of Twente). Link
- Ebaid, I. E. S. (2009). The impact of capital structure choice on firm performance: Empirical evidence from Egypt. Journal of Risk Finance, 10(5), 477–487. https://doi.org/10.1108/15265940911001385 DOI: https://doi.org/10.1108/15265940911001385
- Herciu, M., & Ogrean, C. (2017). Does capital structure influence company profitability? Studies in Business & Economics, 12(3), 92–100. DOI 10.1515/sbe-2017-0036 DOI: https://doi.org/10.1515/sbe-2017-0036
- Majerowska, E., & Gostkowska-Drzewicka, M. (2017). Determinants of corporate performance: Modelling approach. Dynamic Econometric Models, 17(1), 115–127. DOI: https://doi.org/10.12775/DEM.2018.007
- https://doi.org/10.12775/DEM.2017.007
- Mauwa, J., Namusonge, G. S., & Onyango, S. (2016). Effect of capital structure on the financial performance of Rwanda-listed firms. European Journal of Business, Economics and Accountancy, 4(4), 1–11. Link
- Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs, and ownership structure. Journal of Financial Economics, 3(4), 305–360. https://doi.org/10.1016/0304-405X(76)90026-X DOI: https://doi.org/10.1016/0304-405X(76)90026-X
- Modigliani, F., & Miller, M. H. (1958). The cost of capital, corporation finance and the theory of investment. American Economic Review, 48(3), 261–297. Link
- Modigliani, F., & Miller, M. H. (1963). Corporate income taxes and the cost of capital: A correction. American Economic Review, 53(3), 433–443. Link
- Mwangi, L. W., Makau, M. S., & Kosimbei, G. (2014). Relationship between capital structure and performance of non financial companies in the Nairobi Securities Exchange, Kenya. Global Journal of Contemporary Research in Accounting, Auditing and Business Ethics, 1(2), 72–90. Link
- Myers, S. C., & Majluf, N. S. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics, 13(2), 187–221. https://doi.org/10.1016/0304-405X(84)90023-0 DOI: https://doi.org/10.1016/0304-405X(84)90023-0
- Narsaiah, N. (2020). Does capital structure impact financial performance? Evidence from India. Academy of Accounting and Financial Studies Journal, 24(1), 1–19. Link
- Nirajini, A., & Priya, K. B. (2013). Impact of capital structure on the financial performance of listed Sri Lankan companies. International Journal of Scientific and Research Publications, 3(5), 1–9. Link
- Pouraghajan, A., Malekian, E., Emamgholipour, M., Lotfollahpour, V., & Bagheri, M. M. (2012). The relationship between capital structure and firm performance: Evidence from the Tehran Stock Exchange. International Journal of Business and Commerce, 1(9), 166–181. doi: 10.11648/j.jfa.20130103.11 DOI: https://doi.org/10.11648/j.jfa.20130103.11
- Singh, N. P., & Bagga, M. (2019). The effect of capital structure on profitability: An empirical panel data study. Jindal Journal of Business Research, 8(1), 65–77. https://doi.org/10.1177/2278682119853498 DOI: https://doi.org/10.1177/2278682118823312
- Twairesh, A. E. M. (2014). The impact of capital structure on firm’s performance: Evidence from Saudi Arabia. Journal of Applied Finance and Banking, 4(2), 183–193. Link
- Vijayakumar, R. (2017). Capital structure decisions and corporate performance: Evidence from Chinese listed industrial firms. International Journal of Accounting & Financial Reporting, 7(2), 218–231. https://doi.org/10.5296/ijafr.v7i2.11984 DOI: https://doi.org/10.5296/ijafr.v7i2.12455
References
Abor, J. (2007). Corporate governance and financing decisions of Ghanaian listed firms. Corporate Governance: The International Journal of Business in Society, 7(1), 83–92. https://doi.org/10.1108/14720700710727131 DOI: https://doi.org/10.1108/14720700710727131
Allen, M. (Ed.). (2017). The SAGE encyclopedia of communication research methods. SAGE DOI: https://doi.org/10.4135/9781483381411
publications. Link
Baker, M., & Wurgler, J. (2002). Market timing and capital structure. The Journal of Finance, 57(1), 1–32. https://doi.org/10.1111/1540-6261.00414 DOI: https://doi.org/10.1111/1540-6261.00414
Chandrasiri, R. P. I. S., Dilhara, P. K. T., Gunawardena, Kulathilaka, Lishantha., Liyanage, R. S., & Wijesekara. (n.d.). The impact of capital structure on performance of Sri Lankan companies. Link
Das, C. P., & Swain, R. K. (2018). Influence of capital structure on firm performance. Parikalpana: KIIT Journal of Management, 14(1), 87–96. https://doi.org/ 10.23862/kiit-parikalpana/2018/v14/i1/173256. DOI: https://doi.org/10.23862/kiit-parikalpana/2018/v14/i1/173256
Detthamrong, U., Chancharat, N., & Vithessonthi, C. (2017). Corporate governance, capital structure and firm performance: Evidence from Thailand. Research in International Business and Finance, 42, 689–709. https://doi.org/10.1016/j.ribaf.2017.07.011 DOI: https://doi.org/10.1016/j.ribaf.2017.07.011
Domnick, C. H. (2018). Influence of capital structure on firm’s financial performance: An inter-industry investigation of German listed firms (Bachelor’s thesis, University of Twente). Link
Ebaid, I. E. S. (2009). The impact of capital structure choice on firm performance: Empirical evidence from Egypt. Journal of Risk Finance, 10(5), 477–487. https://doi.org/10.1108/15265940911001385 DOI: https://doi.org/10.1108/15265940911001385
Herciu, M., & Ogrean, C. (2017). Does capital structure influence company profitability? Studies in Business & Economics, 12(3), 92–100. DOI 10.1515/sbe-2017-0036 DOI: https://doi.org/10.1515/sbe-2017-0036
Majerowska, E., & Gostkowska-Drzewicka, M. (2017). Determinants of corporate performance: Modelling approach. Dynamic Econometric Models, 17(1), 115–127. DOI: https://doi.org/10.12775/DEM.2018.007
https://doi.org/10.12775/DEM.2017.007
Mauwa, J., Namusonge, G. S., & Onyango, S. (2016). Effect of capital structure on the financial performance of Rwanda-listed firms. European Journal of Business, Economics and Accountancy, 4(4), 1–11. Link
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs, and ownership structure. Journal of Financial Economics, 3(4), 305–360. https://doi.org/10.1016/0304-405X(76)90026-X DOI: https://doi.org/10.1016/0304-405X(76)90026-X
Modigliani, F., & Miller, M. H. (1958). The cost of capital, corporation finance and the theory of investment. American Economic Review, 48(3), 261–297. Link
Modigliani, F., & Miller, M. H. (1963). Corporate income taxes and the cost of capital: A correction. American Economic Review, 53(3), 433–443. Link
Mwangi, L. W., Makau, M. S., & Kosimbei, G. (2014). Relationship between capital structure and performance of non financial companies in the Nairobi Securities Exchange, Kenya. Global Journal of Contemporary Research in Accounting, Auditing and Business Ethics, 1(2), 72–90. Link
Myers, S. C., & Majluf, N. S. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics, 13(2), 187–221. https://doi.org/10.1016/0304-405X(84)90023-0 DOI: https://doi.org/10.1016/0304-405X(84)90023-0
Narsaiah, N. (2020). Does capital structure impact financial performance? Evidence from India. Academy of Accounting and Financial Studies Journal, 24(1), 1–19. Link
Nirajini, A., & Priya, K. B. (2013). Impact of capital structure on the financial performance of listed Sri Lankan companies. International Journal of Scientific and Research Publications, 3(5), 1–9. Link
Pouraghajan, A., Malekian, E., Emamgholipour, M., Lotfollahpour, V., & Bagheri, M. M. (2012). The relationship between capital structure and firm performance: Evidence from the Tehran Stock Exchange. International Journal of Business and Commerce, 1(9), 166–181. doi: 10.11648/j.jfa.20130103.11 DOI: https://doi.org/10.11648/j.jfa.20130103.11
Singh, N. P., & Bagga, M. (2019). The effect of capital structure on profitability: An empirical panel data study. Jindal Journal of Business Research, 8(1), 65–77. https://doi.org/10.1177/2278682119853498 DOI: https://doi.org/10.1177/2278682118823312
Twairesh, A. E. M. (2014). The impact of capital structure on firm’s performance: Evidence from Saudi Arabia. Journal of Applied Finance and Banking, 4(2), 183–193. Link
Vijayakumar, R. (2017). Capital structure decisions and corporate performance: Evidence from Chinese listed industrial firms. International Journal of Accounting & Financial Reporting, 7(2), 218–231. https://doi.org/10.5296/ijafr.v7i2.11984 DOI: https://doi.org/10.5296/ijafr.v7i2.12455