Volume 29 Number 3, 2024

The Impact of the Capital Structure on Firm Performance: The Case of New Enterprises

Bui Thi Thu Loan ^a, Nguyen Xuan Thang ^{b, *}, Tran Tat Thanh ^c
a Hanoi University of Industry, Hanoi, Vietnam
loanbtt@haui.edu.vn
^{*b, c} National Economics University, Hanoi
^*b Corresponding author: thangnx@neu.edu.vn
^c trantatthanh@neu.edu.vn

ABSTRACT

This study investigates the impact of initial capital structure decisions on the performance of start-ups, as well as the benefits of formal debt - particularly bank loans - in the context of a developing economy. We employ regression analysis using the Generalized Method of Moments (GMM) based on panel data from 277 firms during their first five years of operation, including those that had ceased operations at the time of analysis. The results indicate a positive relationship between corporate debt levels and the performance of new firms. This finding contrasts with many studies on mature firms, which often suggest that a higher debt ratio negatively affects firm performance. Furthermore, the analysis highlights the importance of formal debt in early capital structure decisions, showing that businesses with higher leverage - especially those utilizing official bank loans - tend to achieve superior performance in their initial stages.

JEL Classification: G32, M13 

Keywords: start-ups, firm performance, capital structure, financial leverage, bank loan

Cite this article: 

Loan, B.T.T., Thang, N.X., Thanh, T.T., 2024, The Impact of the Capital Structure on Firm Performance: The Case of New Enterprises, International Journal of Business, 29(3), 003. https://doi.org/10.55802/IJB.029(3).003