The impact of capital structure on firm performance and risk in Finland

Abstract

The decision pertaining to the capital structure is one of the most strategic, perpetual, and at the same time challenging corporate decisions. Having an optimum capital structure is an important aspect of the financing of firms. Firms often struggle to create an optimum balance between their debt and equity. The current chapter aims to explore whether the capital structure impacts the performance (financial and nonfinancial) and the financial risks of the firms in Finland. In the current chapter, the secondary data of 50 large-cap Finnish public firms listed at the Helsinki stock exchange has been obtained for the period 2011–2017. The findings of the research disclose that leverage affects most of the accounting, market, and hybrid performance measures negatively. On the other hand, the effect of leverage on the nonfinancial measures has been found to be insignificant. Similarly, a high level of leverage leads to increase in the total risk; however, it does not affect the systematic risk. The current chapter is one of the fewest studies that employed comprehensive analysis through multiple measures of firm performance, risk, and capital structure in the context of the Finnish corporate sector.