Effect of Capital Structure on Firm Valuation in Emerging Markets: Evidence from BRICS Economies

Abstract

The objective of this study is to investigate the impact of capital structure on the value of a firm in the BRICS countries from 2010 to 2024 by analyzing panel data of listed non-financial firms. The research aims to examine the impact of the leverage and its components on market based firm valuation (Tobin's Q) when controlling for macro-economic and firm-specific variables. Capital structure is represented by the ratios of total debt, long-term debt and short-term debt. The empirical approach consists of pooled OLS, fixed effects, random effects and dynamic panel estimation by generalised methods of moments (GMM) to address unobserved heterogeneity and endogeneity. Results show that across all the models, total leverage has a consistent negative and statistically significant impact on firm valuation, suggesting that the use of excessive debt negatively affects firm valuation in the emerging economies. Debt composition, however, is important: long-term debt is positively related to firm valuation, while short-term debt is negatively related to the firm valuation, implying that maturity structure in financing decisions is important. Valuation is positively associated with firm size, profitability and growth opportunities while it is negatively associated with asset tangibility. Factors like GDP growth have a positive impact on firm value, whereas inflation has a negative impact. In general, the results indicated that capital structure is a key factor in determining the value of a company in the BRICS economies, and that, the evidence was strong for the debt structure, but not for debt level. This study also gives new empirical evidence from the emerging markets to the literature on capital structure and gives policy suggestions on corporate financial decision making and capital market development.

Received: 2026-04-19 | Revised: 2026-06-24 | Accepted: 2026-06-26 | Published: 2026-06-30

Declarations

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.

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: M.N.N.: Conceptualization, methodology, writing—original draft preparation, writing—review and editing. All authors have read and agreed to the published version of the manuscript.