Capital Structure and Enterprise Performance: Evidence from Non-financial Companies in China

Abstract

The capital structure has always been the core of corporate finance. The relationship between capital structure and enterprise performance is a key issue for the decision-making and the development of corporate. This paper reviews the classical theory of capital structure and explores the influence and mechanism of capital structure on corporate performance through theoretical analysis and empirical analysis. This research uses the company’s profitability and innovation ability to measure the enterprise’s performance, which respectively represents its short-term competitiveness and long-term sustainable development ability. This paper takes China's non-financial listed companies from 2016 to 2020 as samples, uses the fixed effects model and considers the endogenous problem and the heterogeneity of enterprise size, ownership and industry. The empirical results show that there is an inverted U-shaped relationship between capital structure and performance. This paper further improves the discussion on the relationship between capital structure and enterprise performance, and provides some theoretical suggestions for enterprises to determine the optimal capital structure scientifically in the context of China's current deleveraging policy.