The relationship between capital structure and financial performance in developed countries is a topic that has been extensively studied in the field of finance. While there is no consensus among researchers, several theories and empirical findings provide insights into this relationship. Here are some key points:

1. Modigliani-Miller Theorem: According to the Modigliani-Miller theorem, under certain assumptions, the capital structure of a firm does not affect its overall value or financial performance. This theory suggests that financial decisions, including capital structure choices, are irrelevant in a perfect and efficient market. However, in the real world, market imperfections and factors such as taxes, bankruptcy costs, and agency issues can influence the relationship.

2. Trade-off Theory: The trade-off theory suggests that firms aim to balance the benefits and costs associated with different capital structures. This theory proposes that there is an optimal capital structure that maximizes firm value and financial performance. Firms consider factors such as tax advantages of debt, financial distress costs, and the agency costs of equity when determining their capital structure.

3. Pecking Order Theory: The pecking order theory states that firms prefer internal financing (retained earnings) over external financing (debt or equity issuance). According to this theory, firms choose their capital structure based on the availability and cost of funds. If internal financing is insufficient, firms will resort to debt before equity issuance. This theory suggests that the capital structure is determined by the firm's financial needs rather than its financial performance.

4. Agency Theory: The agency theory focuses on the conflicts of interest between various stakeholders in a firm. It suggests that the capital structure can affect the alignment of interests between managers and shareholders. Debt financing can impose financial discipline on managers, reducing agency costs and potentially improving financial performance. However, excessive debt may also lead to agency problems if managers prioritize short-term goals over long-term sustainability.

5. Empirical Findings: Empirical studies on the relationship between capital structure and financial performance in developed countries have produced mixed results. Some studies suggest a positive relationship between leverage (debt) and financial performance, indicating that higher debt levels may be associated with better financial outcomes. Other studies find a negative or no significant relationship. The variations in findings can be attributed to differences in methodologies, data sources, and sample characteristics.

It is important to note that the relationship between capital structure and financial performance can vary across industries, countries, and economic conditions. Additionally, other factors such as firm size, profitability, growth opportunities, and macroeconomic factors can also influence this relationship. Therefore, it is crucial to consider these complexities when analyzing the relationship between capital structure and financial performance in developed countries

Research have been conducted on developed countries (countries with strong economies) and developing countries (countries with low per capita income). In such research, capital structure (i.e., long-term, short-term, total debts, etc.) can be used as the independent variable in order to test its effect on the dependent variable, financial performance (i.e., ROA, ROE, ROI, profit margin, etc.).

The relationship between capital structure and financial performance is that a well-managed capital structure (debt composition can be managed properly by management) will be able to improve financial performance. If the capital structure is inadequate, it tends to lead to financial difficulties. For developing countries, this will be a more important issue because developing countries still need to pay a lot of attention to aspects other than capital structure. This will cause an uphill task to control the optimal capital structure.

It is a tricky question. If you mean financial performance as profitability, then the answer is YES, there is a relationship due to financial leverage. If you mean capital structure as capital adequacy, then the relationship exists regarding solvency of the company. In this case capital adequacy means the difference between actual net working capital and optimal (needed) working capital. Both forms of the relationship are valid in developed and also in undeveloped countries.

You need items to become a part of education institutions. There is a positive correlation between the components of capital and financial performance at the level of all departments

The relationship between capital structure and financial performance in developed countries is a complex and still-evolving topic. There is no single answer that applies to all companies, as the optimal capital structure will vary depending on a number of factors, including the company's industry, its business risk, and its financial goals.

However, some general trends have been observed. For example, studies have shown that a moderate level of debt can actually be beneficial to a company's financial performance. This is because debt can help to increase the company's return on equity (ROE), as the interest payments on debt are tax-deductible. Additionally, debt can help to reduce the company's cost of capital, as it can lower the risk of the company's equity.

However, too much debt can also be harmful to a company's financial performance. This is because high levels of debt can increase the company's risk of bankruptcy, which can lead to a loss of shareholder value. Additionally, high levels of debt can make it difficult for the company to raise additional capital, which can limit its growth opportunities.

Ultimately, the goal of capital structure management is to find the optimal mix of debt and equity that will maximize the company's financial performance. This is a complex task that requires careful consideration of all of the relevant factors.

I will add my own view from my past experience in banking industry in Turkey many years ago. Turkey is a developing country. Still developing after its liberalization of its economy in 1980. The biggest concern of developing economies for firms is reaching the capital. Capital is expensive in developing countries. Inflation is high in developing countries. Therefore businesses work with with a high ratio of debt/equity. I.e. In the western hemisphere a ratio of 3 would be considered "high." In Turkey many businesses work with 4/1, 5/1 debt/equity ratios and this is envisaged as normal. Do they still make profit? The answer is yes. Yes, interest is tax deductible and inflation hinders their profit margins. Profitability differs from industry to industry. Generally speaking, for the last few years, inflation has been sweeping their profits. Since, inflation is a way of taxation for the government, as a consequence, there is not much resources left for the private sector. Companies with net income/equity ratios exceeding the inflation rate are rare. Companies with positive leverage on assets profitability versus debts consider themselves "lucky," but still comparing with the ongoing inflation they still lose (their capital) in terms of inflation adjusted figures. In the western world this is not the case. Inflation is low. Interest rates are low. As a consequence capital is more reachable compared to developing countries. Companies enjoy the positive leverage on their borrowings. They can expand the business. Governments take measures to curb inflation. All these positive parameters lead positive returns on their capitals. Their debt/equity structures are low, they can borrow money at reasonable rates and still benefit positive leverage. Their capital markets are deep, less vulnerable for speculations and most importantly, people invest and trust in capital markets. Here I do not want to give rates or percentages I just wanted to make a comparison of the western world of developed countries with the developing ones.

The relationship between capital structure and financial performance in developed countries has been a subject of extensive research in the field of corporate finance. Capital structure refers to the mix of debt and equity financing that a company uses to fund its operations, while financial performance encompasses various measures of a company's profitability, efficiency, and overall financial health.

Several theories and empirical studies have examined the relationship between capital structure and financial performance. Here are some key points and findings:

Capital structure has a positive impact on financial performance, however has has to consider the risk factor on Capital structure, more so the size of the business need to be clearly defined especially in developing countries where the economic activities are slow

In general, I agree with you. But I think the size of the business (probably here we are talking about the size of the initial capital) should be determined depending on the specialization (activity) of the business

The relationship between capital structure and financial performance in developed countries is a well-studied area in finance and economics. Capital structure refers to the mix of debt and equity financing a company uses to fund its operations and investments. Financial performance encompasses various metrics, such as profitability, return on investment, and solvency. Here's an overview of the key points regarding this relationship:

In summary, the relationship between capital structure and financial performance in developed countries is multifaceted and context-dependent. Companies carefully consider their unique circumstances, industry dynamics, and economic conditions when making capital structure decisions. The goal is to optimize the balance between risk and return to enhance financial performance and shareholder value. Empirical studies in finance continue to explore these relationships across different industries and market conditions.