Debt Financing and Firm Performance. A Study on Non-Financial Sector of Romania
Abstract
Debt financing is a critical aspect of corporate finance, allowing businesses to raise capital by borrowing funds from external sources, such as banks, bondholders, or investors. It plays a significant role in shaping firm performance, as firms use debt to support their operations, invest in growth opportunities, and manage their capital structure. While debt can provide access to necessary capital, excessive debt levels can also lead to increased financial risk and interest expenses, potentially hampering firm profitability. Striking the right balance between debt and equity financing is essential for optimizing firm performance and ensuring long-term financial stability. The study adopted the descriptive research design. The target population was 110 firms in Brașov, Romania. The study did sample of 90 respondents that were chosen from the target population of 110 firms in Brașov, Romania. Questionnaires were used to gather the data. In conclusion, the study on debt financing and firm performance within the non-financial sector of Romania highlights the significance of prudent capital structure management. While debt financing is a valuable source of capital, businesses must carefully assess their debt levels to strike a balance between achieving growth and maintaining financial stability. The findings underscore the need for continuous monitoring and adaptation of financing strategies to navigate the dynamic financial landscape and promote the economic well-being of the non-financial sector in Romania. It is recommended that non-financial sector firms in Romania focus on optimizing their capital structure by balancing debt and equity financing to match their specific operational needs and risk tolerance. These businesses should implement robust liquidity management strategies to ensure financial stability and meet short-term obligations, reducing the risk of financial distress. Furthermore, firms should maintain a proactive approach by continuously monitoring their financial metrics, staying updated on economic trends, and adapting their financing strategies as needed to enhance their performance and long-term sustainability.
Keywords: Debt Financing, Firm Performance, Non-Financial Sector, Romania
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