Corporate Governance and Capital Structure Decision: A Conceptual Review

Corporate governance and capital structure decisions are critical determinants of a firm’s financial performance, risk management, and long-term sustainability. This conceptual review synthesizes existing literature to examine the interplay between governance mechanisms and financing choices. Drawing upon theories such as agency theory, trade-off theory, and stakeholder theory, this paper explores how governance structures—board composition, ownership concentration, and regulatory frameworks—shape capital structure decisions. Strong governance mechanisms enhance financial discipline, optimize debt-equity balance, and mitigate agency conflicts, whereas weak governance leads to suboptimal financing choices and financial distress. The review also highlights emerging trends, including ESG considerations, digital transformation, and AI-driven governance, which are reshaping traditional governance-financing paradigms. The study identifies key gaps in the literature and suggests future research directions, particularly in governance innovations, AI-based financial decision-making, and regulatory influences on capital structure strategies. This paper provides a foundation for understanding how firms can strengthen governance frameworks to enhance financial stability and shareholder value.