Research on the Impact of Financial Leverage on Corporate Capital Structure

Abstract

In today's highly competitive market environment, financial leverage has become a key tool in corporate capital structure management, attracting increasing attention. This paper systematically explores the theoretical foundation, components, and mechanisms of financial leverage, analyzing its profound impact on corporate capital structure decisions, stability, and capital costs. The research shows that the appropriate use of financial leverage can effectively enhance a company’s return on investment and optimize capital allocation. A moderate level of financial leverage can boost a company's market competitiveness and risk resilience. However, excessive leverage can lead to financial crises, putting companies at risk of severe financial distress. Therefore, when developing financing strategies, companies must carefully assess the balance between risks and rewards. This study aims to provide a solid theoretical basis to assist companies in making sound financial decisions, striving for optimal financial stability and corporate value growth, and laying a firm foundation for sustainable development in complex economic environments.