Capital Structure Dynamics and Their Heterogeneous Effects on Firm Investment Decisions: Empirical Evidence from Emerging and Developed Economies

Abstract

This study investigates the influence of capital structure on firm investment decisions across ten emerging and developed economies, including the United States, United Kingdom, Germany, Japan, India, China, Brazil, South Africa, Mexico, and Turkey, over the period 2008–2023. Using firm-level annual data from Compustat and Worldscope, complemented with macroeconomic indicators from the World Bank, the study employs pooled OLS, fixed and random effects models, dynamic panel System GMM, and panel quantile regressions to examine how debt ratios, leverage, and firm-specific controls such as profitability, size, liquidity, and asset tangibility affect capital expenditure. The results demonstrate that higher debt and leverage significantly constrain investment, while profitability, firm size, and macroeconomic growth facilitate investment decisions. Quantile regressions reveal heterogeneous effects across low-, median-, and high-investment firms, highlighting that financial constraints are more binding for highly capital-intensive firms. The findings provide implications for corporate financial management and policy, emphasizing the need to optimize capital structure and enhance access to financing to support sustainable firm investment across diverse economic contexts.

Received: 2026-03-30 | Revised: 2026-05-12 | Accepted: 2026-05-25 | Published: 2026-05-26

Declarations

Ethics and Guidelines: Not applicable.

Consent to participate: Not applicable.

Consent to publish: The authors have provided consent to publish.

Competing interests: The authors declare no competing interests.

Data availability statement: Data will be made available on reasonable request from the corresponding author.

Funding: This research received no external funding.

Clinical Trial Number: Not Applicable.

Institutional Involvement: The authors declare that the listed institutional affiliations reflect only their academic or professional affiliations at the time of submission and do not imply institutional involvement, support, funding, or endorsement of this research.

Declaration of using generative AI: During the preparation of this work the author(s) used ChatGPT in order to correct the grammatical errors. After using this tool/service, the author(s) reviewed and edited the content as needed and take full responsibility for the content of the published article.

Author Contributions: Conceptualization, M.A.R., and S.A.A.; methodology, M.A.R., and S.A.A.; formal analysis, M.A.R., and S.A.A.; writing—original draft preparation, M.A.R., and S.A.A.; writing—review and editing, M.A.R., and S.A.A. All authors have read and agreed to the published version of the manuscript.