Title: Capital structure and firm performance: the role of corporate governance

Authors: Hussain Muhammad; Stefania Migliori; Sana Mohsni

Addresses: Department of Management and Business Administration, 'G. d'Annunzio' University of Chieti-Pescara, Viale Pindaro, n. 42, 65127-Pescara, Italy ' Department of Management and Business Administration, 'G. d'Annunzio' University of Chieti-Pescara, Viale Pindaro, n. 42, 65127-Pescara, Italy ' Sprott School of Business, Carleton University, 810 Dunton Tower, 1125 Colonel by Drive, Ottawa, Ontario, Canada

Abstract: The purpose of this paper is to examine whether corporate governance has a mediating or moderating effect on the relationship between capital structure and firm performance. This study employs a quantitative method with a sample of 224 Italian non-financial listed firms from 2013-2017. Collected data were analysed using OLS and GMM estimations to test the research hypotheses and to assess the mediating and/or moderating effect of corporate governance. Based on an integrated theoretical framework that draws insights from agency theory, pecking order theory, and trade-off theory, our results are threefold. First, we find that capital structure has a negative and significant impact on firm performance. Second, we show a significant association between corporate governance mechanisms and firm performance. Specifically, we find that board size has a negative effect on firm performance, while board independence and managerial ownership has a positive effect on firm performance. Finally, our results indicate that corporate governance mechanisms do not mediate, but instead moderate the association between capital structure and firm performance. This study further suggests some important policy implications for both theory and practice.

Keywords: capital structure; debt ratio; corporate governance mechanisms; board size; board independence; managerial ownership; firm performance; return on assets; Tobin's Q; mediation and moderation; Italian non-financial firms.

DOI: 10.1504/IJBGE.2021.118595

International Journal of Business Governance and Ethics, 2021 Vol.15 No.4, pp.436 - 458

Received: 16 Oct 2019
Accepted: 12 Jul 2020

Published online: 08 Oct 2021 *

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