Abstract
The research mostly assessed and established the influence of capital structure on the performance of firms listed under the Dar Es Salaam stock exchange (DSE). Specifically, the study aimed to assess the influence of total debt to equity ratio (TDE), total debt to assets ratio (TDA), total equity ratio (TEQ) on the performance of listed firms in Tanzania. Also, the study aimed to determine the control effect of firm size (FS) on the relationship between firm performance and capital structure. The quantitative panel data approach was used. The fixed-effect model for ROA was done to see the influence of TDE on ROA. Results indicated that only TEQ has a significant positive influence on the ROA while TDE and TDA have no significant influence on the ROA. Also, the fixed-effect model for ROCE was carried out to see the relationship between TDE and ROCE. Results showed that TDA and TEQ are insignificant to the ROCE, while TDE is significant to the ROCE. Findings also showed that the presence of the FS on the model of capital structure and ROA, results in TDA, and TEQ having a significant influence on ROA, while TDE becomes insignificant to ROA. Moreover, results indicated that the presence of the FS on the model of capital structure and ROCE results in the only TDE to have a significant influence on ROCE, while TDA and TEQ became insignificant to ROA. The study concluded that TDE has no significant influence on the ROA but TDE has a significant influence on ROCE. Also, the study concluded that TDA has no significant influence on both the ROA and ROCE while TEQ influences ROA positively, and has no significant influence on ROCE. Moreover, the study concluded that the presence of the FS on the model of capital structure and ROA, results in TDA, and TEQ having a significant influence on ROA, while TDE becomes insignificant to ROA. Furthermore, FS resulted in TDE having a significant influence on ROCE, while TDA and TEQ become insignificant to ROCE. The study recommends that companies very carefully must decide on a reasonable capital structure to maintain the performance of the company.
Highlights
Capital structure (CS) is the combination of debt and equity
The study concluded that TDE has no significant influence on the ROA but TDE has a significant influence on ROCE
The study concluded that the presence of the firm size (FS) on the model of capital structure and ROA, results in TDA, and total equity ratio (TEQ) having a significant influence on ROA, while TDE becomes insignificant to ROA
Summary
CS shows the way firms finance their assets. It shows the combination of equity and debt. CS plays an important role in a firm’s financial performance, as the optimal mix of the CS has the best interests on shareholder’s wealth and the value of the company. Shareholders have an interest in maximizing their wealth (Le & Phan, 2017). This becomes critical for entrusted management to come up with a good mix of the CS by combining debt and equity effectively and efficiently to maximize the market value of the company and to meet the highly expected shareholders’ interests (Chaganti & Damanpour, 1991)
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