Capital Structure - Firm Performance Nexus: A Systematic Review Amid the COVID-19 Crisis

Abstract

The COVID-19 pandemic created unprecedented challenges for firms globally, disrupting liquidity, profitability, and financial stability. This systematic review synthesizes empirical evidence on the relationship between capital structure decisions, firm performance, and resilience during the pandemic across diverse sectors and regions. Using a qualitative synthesis guided by PRISMA principles, the review draws on studies published between 2020 and 2024 from leading journals accessed via Google Scholar. The selected studies were based on various emerging and developed markets. Findings show that excessive leverage consistently weakened performance by escalating debt-servicing burdens, liquidity pressures, and profitability declines. Conversely, firms with balanced or conservative capital structures demonstrated greater stability, supported by access to equity markets and government interventions. Sectoral heterogeneity was evident, wherein hospitality and service industries experienced heightened solvency risks, while IT and healthcare exhibited mixed resilience due to shifting demand conditions. Geographic disparities further revealed that emerging markets, constrained by underdeveloped capital systems, were more vulnerable. Overall, the pandemic functioned as a stress test, underscoring the importance of prudent leverage management and adaptive financing strategies.