The Role of Firm Size and Financial Leverage in Enhancing Firm Value: A Systematic Review of Empirical Studies

Abstract

This study seeks to investigate the influence of business size and financial leverage on firm value through a systematic literature review (SLR) utilising the PRISMA framework. The research resolves discrepancies in previous empirical results by integrating evidence from several investigations. Data were gathered from eight datasets exported from ScienceDirect, initially consisting of 3,816 raw records. Following data cleansing and reorganisation utilising bibliographic indicators (TY = JOUR), 704 genuine journal articles were discovered. Fifty empirical papers were selected for final analysis through a stringent PRISMA procedure encompassing identification, screening, eligibility, and inclusion stages. A data extraction matrix was created to comprehensively compare study aspects, encompassing context, technique, variables, and principal findings. The findings indicate that firm size typically exerts a positive and considerable influence on firm value, attributable to economies of scale, enhanced access to capital markets, and diminished knowledge asymmetry. Conversely, financial leverage exhibits a non-linear connection; moderate leverage increases business value via tax advantages and signalling effects, whereas excessive leverage detrimentally affects value due to financial distress and agency costs. The results indicate that the relationship among these variables is contingent upon context and affected by mediating and moderating factors, including profitability, growth possibilities, and corporate governance. These considerations elucidate the discrepancies noted in previous investigations. This work enhances the literature by delivering a thorough and organised synthesis of empirical evidence, elucidating the interaction between business size and financial leverage in influencing firm value. The findings indicate that companies ought to implement optimal capital structure strategies customised to their own circumstances instead of depending on generalised assumptions. Future study should investigate integrated models that include supplementary moderating variables to improve explanatory efficacy.