The Study Capital Structure Decisions and Firm Performance in Emerging Markets: A Conceptual and Empirical Research Framework

Abstract Financial financing is one of the most important topics in corporate finance, as financial decisions impact on the cost of capital, financial risk, investment potential, and ultimately the performance of a company. The link between leverage and performance, however, has not been consistent from country to country and institution to institution. This paper proposes a framework for finance research on the topic of the impact of capital structure on firm performance in emerging markets, focusing on leverage, debt maturity, liquidity, firm size, growth opportunities, asset tangibility and profitability. The paper incorporates theories such as capital structure theories (Modigliani–Miller theory, trade-off theory, pecking order theory, agency theory and market-timing perspective). The empirical evidence to-date shows that the relationship between debt and performance is contingent on the type of debt, institutional quality, financial development and firm attributes. Research on emerging economies has yielded both negative and positive findings, indicating that the context of the country and financing structure can have an impact. The paper introduces a testable conceptual model and a panel-data methodology which can be used on a list of non-financial listed firms. It also outlines hypotheses, measurement strategies, robustness checks and implications for financial managers, investors, lenders and researchers. The study is not primary empirical, but it offers a formal structure that can be carried out with secondary financial data that is audited.