The capital structure–firm performance nexus: The role of judicial efficiency

We apply the two‐step system generalized method of moments technique to data from 408 microfinance institutions (MFIs) in 73 countries to investigate the effect of capital structure on the financial performance of MFIs and to examine whether judicial efficiency interacts with capital structure to drive the financial performance of MFIs. The results generally show that leverage hurts the financial performance of MFIs. The results also show that judicial inefficiency deepens the negative effect of capital structure on the financial performance of MFIs. We conclude that judicial efficiency matters for the capital structure–firm performance nexus in the microfinance industry.