The moderating and mediating effects of corporate governance and capital structure on firm performance: empirical evidence from an emerging market

PurposeThis study aims to focus on the direct, mediating and moderating effects of corporate governance (CG) and capital structure (CS) in their relationships with firm performance (FP).Design/methodology/approachMultivariate panel data regression techniques are employed to analyse the direct, mediating and moderating impacts of the CG and CS on FP of 38 listed Mauritian non-financial companies from 2009 to 2019.FindingsThis study shows that CG has a positive but insignificant influence on return on equity (ROE) and Tobin's Q. CS has a significant negative impact on both ROE and Tobin's Q and supports the pecking order theory (POT). The interaction of CG and CS influences FP, but the strength of the moderating effects depends on the performance measure being used. Both CS and CG have no mediation effects in their relationship with FP measured by ROE and Tobin's Q.Practical implicationsThe results indicate that the combination of the high leverage ratio and good governance practices of companies can improve FP and increases investor confidence resulting in a positive reaction on their market share prices.Originality/valueThis paper contributes to the CG and CS literature by introducing a more precise and comprehensive research approach and is the first to attempt to extend CG and CS in their associations with FP by incorporating both CG and CS as profound moderator and mediator variables simultaneously in the same study.