Examining the Impact of Firm Performance on Capital Structure: An Empirical Study of Swedish Listed Investment Companies

Abstract

This study investigates the relationship between firm performance and capital structure among Swedish listed investment companies over the period from 2013 to 2023. Grounded in the foundational theories of Modigliani and Miller, trade-off theory, and pecking order theory, the research employs a Generalized Least Squares (GLS) regression model to explore how firm performance impacts capital structure. The analysis reveals that return on equity (ROE) positively correlates with debt ratio, while return on assets (ROA) negatively correlates with debt ratio, indicating that more profitable firms prefer lower leverage. Despite the limited sample size of 211 observations across 22 companies, the study provides valuable insights into the capital structure dynamics specific to investment companies in the Swedish market. The findings highlight the importance of profitability in capital structure decisions and suggest that traditional capital structure theories are applicable within this context. However, the study's limitations, including data quality, model assumptions, and external validity, underscore the need for cautious interpretation and further research to generalize these findings to other sectors and regions.