Impact of Capital Structure on The Performance of Non-Financial Firms in Emerging Markets: Evidence from The Bombay Stock Exchange Using GMM Estimation

This study investigates the effect of capital structure on the performance of 289 non-financial firms listed on ‎the Bombay Stock Exchange (BSE) from 2018 to 2023. Capital structure, defined as the mix of debt and ‎equity, significantly influences firm value. Unlike earlier studies focusing mainly on ROA or ROE, this ‎research includes net profit and gross profit margins. Using the two-step Generalized Method of Moments ‎‎(GMM) to address endogeneity, the study incorporates Modigliani and Miller’s theory, agency theory, and ‎the pecking order theory. Results show a negative relationship between long-term debt and firm ‎performance. Firm size positively impacts efficiency, while a higher dividend payout negatively correlates ‎with ROE. Sales growth enhances firm performance, and asset tangibility negatively affects efficiency. The ‎study is limited by its regional scope and five-year period, suggesting future research should include more ‎countries and extended timeframes for broader insights‎.