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Capital structure and a firm´s profitability: is there any relationship?

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  • Samuel Tabot Enow

    (Research Associate, The IIE VEGA School)

Abstract

Capital structure defined by the proportion of debt and equity financing has always been an important component in managerial finance due to its relative importance in measuring a company's risk. Arguably, it is among the most controversial topics in corporate finance and has gain recent recognition of its importance when considering the emergence of different sources of financing across industry. The purpose of this study was to explore the relationship between capital structure and a firm's profitability in other to determine whether a significant connection exists between how a firm finances its operations and its financial performance. A comprehensive Lilliefors’s, Kolmogorov Smirnov and Chi square tests analysis were utilised for a sample of 23 peer reviewed journal articles across various industries. The findings revealed that capital structure cannot be used to explain variations in profitability and profitability is independent of capital structure. This paper contributes to the ongoing debate on optimal capital structure by strengthening methodological rigor and some of the existing theories on how capital structure can be used to maximise profitability. It may be very helpful for further studies to first establish the direction of impact and the size effect of the independent variables. Key Words:Capital structure, profitability, meta-analysis, Lilliefors test, Kolmogorov Smirnov test, Chi square test

Suggested Citation

  • Samuel Tabot Enow, 2025. "Capital structure and a firm´s profitability: is there any relationship?," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 14(2), pages 164-172, March.
    • Handle: RePEc:rbs:ijbrss:v:14:y:2025:i:2:p:164-172
    DOI: 10.20525/ijrbs.v14i2.3838
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    References listed on IDEAS

    as
    1. Samuel Tabot Enow, 2023. "Detecting the Herding Behaviour in the South African Stock Market and its Implications," International Journal of Economics and Financial Issues, Econjournals, vol. 13(2), pages 88-92, March.
    2. Joshua Abor, 2005. "The effect of capital structure on profitability: an empirical analysis of listed firms in Ghana," Journal of Risk Finance, Emerald Group Publishing, vol. 6(5), pages 438-445, November.
    3. Hamed Ahmad Almahadin & Yazan Oroud, 2019. "Capital structure-firm value nexus : the moderating role of profitability," Revista Finanzas y Politica Economica, Universidad Católica de Colombia, vol. 11(2), pages 375-386.
    4. Rafiu Oyesola Salawu, 2009. "The Effect Of Capital Structure On Profitability: An Empirical Analysis Of Listed Firms In Nigeria," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 3(2), pages 121-129.
    5. Joshua Abor, 2005. "The effect of capital structure on profitability: an empirical analysis of listed firms in Ghana," Journal of Risk Finance, Emerald Group Publishing Limited, vol. 6(5), pages 438-445, December.
    6. Matthew Adeolu Abata & Stephen Oseko Migiro, 2016. "Capital Structure and Firm Performance in Nigerian-Listed Companies," Journal of Economics and Behavioral Studies, AMH International, vol. 8(3), pages 54-74.
    7. Monika Wieczorek-Kosmala & Joanna Błach & Iwona Gorzeń-Mitka, 2021. "Does Capital Structure Drive Profitability in the Energy Sector?," Energies, MDPI, vol. 14(16), pages 1-15, August.
    8. Ahmed Sakr & Amina Bedeir, 2019. "Impact of Capital Structure on Firm¡¯s Performance: Focusing on Non-financial Listed Egyptian Firms," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 10(6), pages 78-87, October.
    9. Samuel Tabot ENOW, 2023. "A Non-linear Dependency Test for Market Efficiency: Evidence from International Stock Markets," Journal of Economics and Financial Analysis, Tripal Publishing House, vol. 7(1), pages 1-12.
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