Impact of Corporate Capital Structure on Corporate Performance: An Empirical Study of Emerging Market Using GMM Estimation Technique

Abstract

This study aims to check the impact of capital structure on nonfinancial firm's performance, which are listed on the Pakistan Stock Exchange. This study used panel data from 06 years of 289 nonfinancial firms from 2017 to 2022 to achieve the goal. This study used two-step Generalized Methods of Moments (GMM), a dynamic analysis model. Five measures are used for firm performance, while two are used for capital structure. This study proved that a mixed result, such as TDR, has a significant and inverse relation with four measures of firm performance, such as ROA, GPM, NPM, and SP, while statistically, there is no relation with ROE. LTDR is only significant with NPM at a 5% level and has an inverse impact on NPM. This study is significant because it examines, in a single investigation, the effects of leverage on various performance metrics. This study is particularly well-weighed because it has many ramifications for potential stakeholders. The study's practical implications will benefit top-level management in strategic management, the government in enacting laws and other regulations, and investors in making investment decisions based on various environmental and factor considerations. A lower leverage ratio, for instance, is a sign of improved performance because managers will strategically plan to keep it low. On the other hand, lower leverage ratios are also advantageous to stockholders because they allow them to invest in companies with lower debt-to-equity ratios and increase their wealth.