Predicting capital structure decisions through firm performance, firm size, and corporate governance

Corporate structure decisions are the foundation of a company’s legal, financial, and operational framework, influencing diverse issues, from liability and tax obligations to growth potential and public perception. The paper aims to analyze the effect of firms’ financial performance on capital structure decisions. Firm size and corporate governance were taken as moderators and mediators, respectively. The study is based on 23 non-banking public firms listed on the Nepal Stock Exchange, adapting a causal-comparative research design. The moderated mediation model was tested using the Process Macro to assess the impact of corporate governance scores on the relationship between firm performance and capital structure. The result shows that firm performance positively and significantly impacts capital structure decisions. The results revealed no effect of corporate governance on capital structure decisions; however, the moderated mediation impacts of corporate governance and firm size have been reflected in the financing decision. This study extends previous research with the moderated mediation effects of corporate governance and the size of non-banking firms on their financing decisions. The results encourage managers to raise debt funds for those firms that observe the firm’s size, providing practical insights into business decisions. The study also has policy and theoretical implications. Acknowledgment We are grateful to everyone who contributed directly or indirectly to the research. We also appreciate the anonymous reviewers’ insightful feedback, which helped enhance the quality of the paper.