Impact of capital structure and innovation on firm performance. Direct and indirect effects of capital structure

This research aims to empirically examine the impact of capital structure and innovation on firm performance among small and medium-sized (SMEs) Mexican manufacturing firms and analyze the indirect effects of capital structure to determine mediating effects of innovation. A quantitative approach and cross-sectional design were applied through the Partial Least Squares Structural Equation Modeling (PLS-SEM). A simple random sampling technique and a self-administered questionnaire was used to gather data from a sample of 220 managers or business owners in the state of Aguascalientes, Mexico. The results indicate that capital structure has a significant impact on innovation and only an indirect effect on firm performance. Due to the innovation demonstrated to have a significant full mediating role in this relationship if SMEs want to have better firm performance, they must increase their level of innovation. Therefore, decision-makers must pay special attention to the reinvestment of their profits to increase the levels of innovation and firm performance. (C) 2021 The Authors. Published by Elsevier B.V.