The Impact of the Capital Structure on Firm Performance; evidence from UK companies

Abstract

This study investigates the impact of capital structure on firm performance. The sample used for the study is UK firms from 2010 to 2019. The variables of this study are capital structure, firm performance, firm size, asset growth, and liquidity. The dependent variable is firm performance and has been measured by the Return on Asset whereas, the independent variable is the capital structure and has been measured by Total Debt ratio and Debt to Equity ratio. The overall results indicate a significant negative relationship between capital structure and firm performance. This suggests that UK firms should decrease the debt in the capital structure to support the profitability and performance of the firm. The study’s result is useful for decision makers to set a suitable capital structure in order to pursue the interest of shareholders which is the prime objective of any corporation.