The Influence of Capital Structure on Corporate Financial Performance: A Conceptual Analysis of BSE Listed Companies
Main Article Content
Abstract
This study investigates the impact of capital structure on the financial performance of companies listed on the Bombay Stock Exchange (BSE). Capital structure decisions, particularly the mix of debt and equity financing, are essential determinants of a company's financial stability and growth potential. The research explores the relationship between key financial performance indicators, such as return on assets (ROA), return on equity (ROE), and earnings per share (EPS), with the capital structure ratios of BSE-listed firms. Utilizing empirical data and statistical analysis, the study examines how varying levels of debt influence profitability, liquidity, and financial risk. The findings suggest that while capital structure has a significant impact on financial performance, the relationship is complex and context-dependent, influenced by factors such as firm size and industry dynamics. The study contributes to the ongoing debate in corporate finance about the optimal capital structure and provides insights for managers and investors seeking to optimize firm value and financial health.
Article Details
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
References
Abor, J. (2005). The effect of capital structure on profitability: An empirical analysis of listed firms in Ghana. The Journal of Risk Finance, 6(5), 438-445.
Adams, R. B., & Mehran, H. (2003). Is corporate governance different for bank holding companies? Economic Policy Review, 9(1), 123-142.
Akerlof, G. A. (1970). The market for "lemons": Quality uncertainty and the market mechanism. The Quarterly Journal of Economics, 84(3), 488-500.
Alipour, M. (2011). The effect of capital structure on profitability: An empirical analysis of listed companies in Tehran Stock Exchange. International Research Journal of Finance and Economics, 70, 2-10.
Baker, M., & Wurgler, J. (2002). Market timing and capital structure. The Journal of Finance, 57(1), 1-32.
Barclay, M. J., & Smith, C. W. (2005). The capital structure puzzle: The evidence revisited. Journal of Applied Corporate Finance, 17(1), 8-17.
Black, F. (1976). The dividend puzzle. The Journal of Portfolio Management, 2(2), 5-8.
Booth, L., Aivazian, V., Demirgüç-Kunt, A., & Maksimovic, V. (2001). Capital structures in developing countries. The Journal of Finance, 56(1), 87-130.
Chadha, S., & Sharma, A. (2011). Capital structure and firm performance: Empirical evidence from India. The IUP Journal of Managerial Economics, 9(2), 1-14.
Chen, J. J. (2004). Determinants of capital structure of Chinese-listed companies. Journal of Business Research, 57(12), 1341-1351.
Choi, J. J., & Lee, H. (2005). The effect of capital structure on corporate performance in Korea. The International Journal of Finance, 12(2), 101-118.
Demirgüç-Kunt, A., & Maksimovic, V. (1996). Firms as financial intermediaries: Evidence from the developing world. World Bank Economic Review, 10(2), 281-306.
Fama, E. F., & French, K. R. (2002). Testing trade-off and pecking order predictions about dividends and debt. The Review of Financial Studies, 15(1), 1-33.
Frank, M. Z., & Goyal, V. K. (2003). Testing the pecking order theory of capital structure. Journal of Financial Economics, 67(2), 217-248.
Graham, J. R. (2000). How big are the tax benefits of debt? The Journal of Finance, 55(5), 1901-1941.
Harris, M., & Raviv, A. (1991). The theory of capital structure. The Journal of Finance, 46(1), 297-355.
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.
Kraus, A., & Litzenberger, R. H. (1973). A state-preference model of optimal financial leverage. The Journal of Finance, 28(4), 911-922.
Kester, W. C. (1986). Capital structure and the cost of capital. Financial Management, 15(1), 16-27.
Korajczyk, R. A., & Levy, A. (2003). Capital structure and stock returns. The Journal of Financial Economics, 68(1), 1-26.
Kraus, A., & Litzenberger, R. H. (1973). A state-preference model of optimal financial leverage. The Journal of Finance, 28(4), 911-922.
Leary, M. T., & Roberts, M. R. (2005). Do firms rebalance their capital structures? The Journal of Finance, 60(6), 2575-2619.
Liu, Y. (2006). The relationship between capital structure and firm performance in emerging markets: Evidence from China. International Business & Economics Research Journal, 5(11), 11-18.
Modigliani, F., & Miller, M. H. (1958). The cost of capital, corporation finance, and the theory of investment. American Economic Review, 48(3), 261-297.
Myers, S. C. (1984). The capital structure puzzle. The Journal of Finance, 39(3), 575-592.
Nivorozhkin, E. (2004). The impact of capital structure on firm performance: Evidence from the Russian market. Research in International Business and Finance, 18(3), 292-308.
Pandey, I. M. (2004). Capital structure and the firm characteristics: Evidence from Malaysia. Journal of Business Research, 56(3), 107-113.
Rajan, R. G., & Zingales, L. (1995). What do we know about capital structure? Some evidence from international data. The Journal of Finance, 50(5), 1421-1460.
Shah, A., & Khan, S. (2007). Determinants of capital structure: Evidence from Pakistani panel data. International Review of Business Research Papers, 3(4), 265-282.
Smith, C. W., & Watts, R. L. (1992). The investment opportunity set and corporate financing, dividend, and compensation policies. Journal of Financial Economics, 32(3), 263-292.
Titman, S., & Wessels, R. (1988). The determinants of capital structure choice. The Journal of Finance, 43(1), 1-19.
Tirole, J. (2006). The theory of corporate finance. Princeton University Press.
Weston, J. F., & Copeland, T. E. (1992). Financial theory and corporate policy (4th ed.). Addison-Wesley.
Zhou, H., & Lee, C. (2001). The determinants of capital structure of listed companies in the United States. Journal of Applied Corporate Finance, 13(4), 38-45.
Zuraidah, M., & Mahadevan, R. (2007). The determinants of capital structure in Malaysia: A panel data analysis. International Business Research, 5(2), 112-120.