The impact of capital structure on product responsibility and corporate reputation: Evidence from non-financial institutions listed on the London stock exchange

Abstract

Companies that prioritize product responsibility often develop stronger brand identities and foster greater consumer loyalty. However, these outcomes are influenced by the firm's capital structure. This study applies the trade-off theory to examine how capital structure affects product responsibility and corporate reputation. Using purposive sampling, the study analyzed 22 years of data (2002–2023) from 163 non-financial firms listed on the London Stock Exchange, sourced from Thomson Reuters Eikon DataStream. The analysis employed the Common Correlated Effects Mean Group (CCEMG) and two-step Generalized Method of Moments (GMM) estimation techniques. Findings reveal a significant negative relationship between the debt-to-equity ratio and both product responsibility and corporate reputation. Additionally, the interaction between governance and the debt-to-equity ratio negatively influences product responsibility but positively affects corporate reputation. To enhance product responsibility, companies should adopt sustainable practices, such as implementing environmentally friendly technologies and promoting supply chain transparency. Management may also consider increasing equity financing—through retained earnings or new share issuance—to improve financial stability and stakeholder confidence, thereby strengthening market perception and corporate reputation.