Capital Structure and Firm Performance: Empirical Research Based on Global E-Retailing Companies

Abstract

This paper presents an empirical research study investigating the relationship between capital structure and firm performance in a sample of global e-retailing companies. We adopt Data Envelopment Analysis (DEA) to calculate the best practice frontier, then, use firm efficiency as a measure of the distance from best practice frontier. We also use debt ratio to represent capital structure. Through these measures, we first examine whether the effect of leverage on efficiency is positive or negative, based on the trade-off theory, the agency cost theory, and the pecking order theory. Next, we explore their reverse causality relationship following the efficiency-risk hypothesis and franchise-value hypothesis. After building the model and quantilen regressions, we find out the results are partial consistent with pecking order theory.