A Systematic Literature Review on the Impact of Capital Structure on Corporate Financial Performance

The study attempts to consider the theoretical foundations and empirical literature on the relationship between the capital structure of a firm and corporate financial performance using a systematic literature review approach. Systematic literature review methodology attempts to study the existing literature on a research question in a scientific manner that is transparent and replicable. It is a methodology that is becoming increasingly popular in research due to the transparency and replicability of the approach. Research papers reviewed were compiled based on a systematic approach, using research papers indexed in web of science database. Literature surveyed reveals that Studies have been conducted at the economy level, sectoral level (manufacturing, services) and for specific industries. While most researches conclude that there is indeed a significant impact of capital structure of a firm on the financial performance, they differ in their opinions on the nature of the impact. The studies lack unanimity on whether the level of debt employed in the capital has a positive or negative impact on financial performance. Differences have been observed in terms of the impact of short-term debt and long-term debt on financial performance as well.