Some exploratory literature review questions to ask for doing Accounting and Finance dissertation projects

Some exploratory literature review questions to ask for doing Accounting and Finance dissertation projects [information from perplexity.ai]

My question 1: "Q1: What have been the main academic findings related to the research theme of "how the capital structure of companies affects the financial performance of companies in the retail sector"? And Q2: What research methods and academic theories have been employed in these academic works? Finally, Q3: What have been the research issues uncovered in these research works?"

The reply: "Main Academic Findings [Q1]

Research on the impact of capital structure on the financial performance of companies in the retail sector has yielded several significant findings:

• Negative Relationship: Numerous studies indicate a negative correlation between high debt levels and profitability. For instance, a study on large-scale retail supermarkets in Kenya found that capital structure decisions negatively affected profitability, with a regression coefficient of -0.3479 and a p-value of 0.000, suggesting that increased debt leads to decreased profitability
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  . Similar results were observed in South Africa, where high levels of debt were associated with reduced financial performance among retail firms
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• Pecking Order Theory: The findings often align with the pecking order theory, which posits that firms prefer internal financing and will only resort to debt when internal funds are insufficient. This theory was supported by evidence showing that short-term debt negatively impacted profitability more than long-term debt
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• Optimal Capital Structure: Some studies suggest that achieving an optimal balance between debt and equity is crucial for maximizing profitability. For example, management should strategically decide on the mix of financing to enhance financial outcomes
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• Sector-Specific Dynamics: The retail sector's unique characteristics, such as high competition and fluctuating consumer confidence, further complicate the relationship between capital structure and financial performance. Retail firms often maintain high leverage despite declining sales, indicating a complex interplay between financing strategies and market conditions
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Research Methods Employed [Q2a]

The methodologies used in these studies vary but commonly include:

• Panel Data Analysis: Many studies employed panel data econometric techniques to analyze relationships over time across multiple firms. This method allows for more robust statistical analysis by combining cross-sectional and time-series data
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• Regression Analysis: Regression models were frequently used to quantify the impact of capital structure on profitability metrics such as Return on Assets (ROA) or net profit margins. Various regression estimators were applied to assess different dimensions of capital structure (e.g., short-term vs. long-term debt)
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• Descriptive Statistics: Studies often included descriptive statistics to summarize financial data, such as mean, standard deviation, and correlation coefficients, providing insights into the general trends in capital structure within the sector
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[Q2b] The academic works exploring the relationship between capital structure and financial performance in the retail sector have employed several key theories:

Key Theories

1. Modigliani and Miller Theorem:
   • This foundational theory posits that, in a perfect market, the value of a firm is unaffected by its capital structure. The original proposition suggests that neither the cost of equity nor the overall cost of capital is influenced by the mix of debt and equity. However, real-world factors such as taxes and bankruptcy costs lead to modifications in this theory, acknowledging that capital structure can affect firm value under certain conditions 
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2. Pecking Order Theory:
   • Proposed by Stewart Myers and Nicolas Majluf, this theory asserts that firms prefer to finance their investments using internal funds (retained earnings) first, followed by debt, and resort to equity financing only as a last option. This hierarchy arises due to asymmetric information between managers and investors, leading to adverse selection issues when issuing new equity 
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     . Many studies have found support for this theory in the retail sector, indicating that high levels of debt negatively correlate with financial performance 
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3. Trade-Off Theory:
   • This theory suggests that firms strive to balance the tax benefits of debt (interest is tax-deductible) against the costs associated with potential bankruptcy. It implies that there exists an optimal capital structure where the marginal benefit of debt equals its marginal cost. While some studies have explored this theory in relation to retail firms, findings often indicate that firms do not necessarily achieve this optimal balance, especially in highly competitive environments 
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Research Issues Uncovered [Q3]

Several research issues have emerged from these studies:

• Inconclusive Findings: Despite extensive research, there remains a lack of consensus regarding the optimal capital structure for retail firms. Some studies suggest that while high leverage can lead to lower profitability, others indicate that strategic use of debt can enhance financial performance under certain conditions
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• Impact of External Factors: The influence of external factors such as economic downturns, consumer behavior changes, and regulatory environments on capital structure decisions has been inadequately explored. Understanding these dynamics could provide deeper insights into how retail firms can navigate financial challenges
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• Need for Sector-Specific Models: Existing models may not fully capture the unique characteristics of the retail sector, necessitating the development of tailored frameworks that consider industry-specific factors influencing capital structure decisions
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These findings highlight the complexity of capital structure decisions in the retail sector and underscore the need for further research to clarify these relationships and develop effective financial strategies."

Reference: a collection of blog notes on using chatgpt for research purpose.