Relationship between Capital Structure and Firm’s Performance: Theoretical Review

Abstract

Advocates of optimal capital structure argue that judicious combination of debt and equity maximizes the value of a firm. There are dissenting views among scholars on what constitutes optimal capital mix and its effects on a firm’s financial performance. This paper attempts a theoretical review of the relationship between capital structure and firm’s performance. As the title suggests, we try to locate, identify and analyse comments, suggestions, conclusions and recommendations by other researchers and scholars alike on the contentious issue of capital structure and maximization of a firm’s performance in the face of systematic risk.

Keywords: Determinants, firm’s performance, Capital structure, pecking order