The Impact of Capital Structure on Business Growth Under IFRS Adoption: Evidence From Firms Listed in the Frankfurt Stock Exchange

The study leverages the trade-off theory to assess the influence of capital structure on business growth following adopting IFRS. Employing a purposive sampling technique, 92 non-financial institutions listed on the Frankfurt Stock Exchange from 1994 to 2021 were selected for analysis. A two-step Generalized Method of Movements (GMM) was utilized to explore the impact of firms’ capital structure on their business growth under IFRS adoption. Results indicated a positive and statistically significant correlation between the debt-to-equity ratio and business growth (assets, sales, and profit). Moreover, the study revealed that the debt-to-capital and long-term debt-to-capital ratios had a negative effect on asset and profit growth but a positive impact on sales growth. Additionally, the debt-to-total-assets ratio demonstrated a negative influence on asset and sales growth but a positive effect on profit growth. Firms adopting IFRS had positive and significant impacts on sales, assets, and profit growth. Furthermore, the findings highlighted the adverse effects of the 2008 financial crisis and the COVID-19 pandemic on business growth. Firms listed on the Frankfurt Stock Exchange can strategically utilize these findings to optimize their capital structure decisions within the framework of IFRS adoption. By comprehending the nuanced relationship between capital structure and business growth, managers can tailor financing strategies to foster sustainable growth while managing financial risks effectively.