The Role Of Capital Structure In The Firm Performance And Sustainability Relationship

Abstract

The objective of this study is to investigate the association between firm performance and sustainability in the global context by considering the capital structure as a moderating variable. The study considered 2857 publicly listed firms from 38 non-US countries across the globe for the 2002 to 2023 period. The study used the selected econometric strategy, which comprises a panel ordinary least squares model that controls for time and industry heterogeneity. The findings revealed that capital structure enhances the positive relationship between firm sustainability practices, pointing out the view that managers are pressurized to rely less on equity capital when there is a probability of agency costs associated with low debt. This study offers novel insights concerning the joint role of firm performance and capital structure in ESG performance in the global context.

Keywords: Financial performance, ESG performance, Capital Structure, Slack resource theory