The Effect of Golden Ratio-Based Capital Structure on Firm’s Financial Performance

Round 1

Reviewer 1 Report

The level of originality of the paper is high. The literature review and proposed methodology are properly discussed and compared to the previous studies.

In this paper, authors used many sources, containing both historical and fundamental works, as well as the latest scientific research on this topic. But the literature review can be structured. The papers discussed many points of this study. Please, discuss the newest papers:

QoS-Ledger: Smart Contracts and Metaheuristic for Secure Quality-of-Service and Cost-Efficient Scheduling of Medical-Data Processing. Electronics, 10, 3083. https://doi.org/10.3390/electronics10243083

Development of Polymer Film Coatings with High Adhesion to Steel Alloys and High Wear Resistance. Polymer Composites, 41(7), 2875-2880. https://doi.org/10.1002/pc.25583

Emotional Development in Preschoolers and Socialization. Early child development and care, 191, 16. https://doi.org/10.1080/03004430.2020.1717480

The introduction section has benefit from having a clearer structure of what to expect in the paper. Furthermore, the author(s) would benefit from being more concise in their writing, as much of the content was redundant and overemphasized. While it is good practice to assume the reader has no prior knowledge of the content, a topic and/or discussion does not need to be explained over and over again if it is stated both adequately and appropriately once.

Some conclusions contribute to the study of the problem. The author does not formulate the problem itself – it makes impossible to analyse the contribution of the paper. The aim or the question of the paper (or even the hypothesis of the author) are formulated.

Overall, it is very clear to grasp understanding of the manuscript and content in its current state. I strongly advise using hypothesis points to articulate and/or express material in scientific writing. Publication of this piece seems likely in any reputable scientific periodical after a correction in the writing of the manuscript.

Tables are important to explore the specifics. But should add some conclusions about every table into text to the study of the problem.

Authors need to add more details on the range of simulation considered in this work should be clearly outlined within the abstract. The current statements are vague and too general to get an idea of the work that have been accomplished.

The paper possesses a proper form of well-structured and readable technical language of the field and represents the expected knowledge of the journal`s readership.

There are small errors in English, but this does not affect the general nature of the work. The current study brings many new to the existing literature or field. For one, the author(s) seem to have a good grasp of the current literature on their topic area (i.e., recent literature and seminal texts relevant to their study is not cited/referenced).

Author Response

The level of originality of the paper is high. The literature review and proposed methodology are properly discussed and compared to the previous studies.

Response:  Dear reviewer, to begin, we would want to express our thanks for the time you spent reviewing our work. We really appreciate it.

In this paper, authors used many sources, containing both historical and fundamental works, as well as the latest scientific research on this topic. But the literature review can be structured. The papers discussed many points of this study. Please, discuss the newest papers:

QoS-Ledger: Smart Contracts and Metaheuristic for Secure Quality-of-Service and Cost-Efficient Scheduling of Medical-Data Processing. Electronics, 10, 3083. https://doi.org/10.3390/electronics10243083

Development of Polymer Film Coatings with High Adhesion to Steel Alloys and High Wear Resistance. Polymer Composites, 41(7), 2875-2880. https://doi.org/10.1002/pc.25583

Emotional Development in Preschoolers and Socialization. Early child development and care, 191, 16. https://doi.org/10.1080/03004430.2020.1717480

Response: Thank you so much for your kind suggestion. We are grateful for your support. We have cited the papers that you suggested and we have included more new literature to the studies. 

Other researches also confirm the importance of performance as a sustainable way of measuring service quality, as they have used new trending approaches in different social and scientific fields to analyse and enhance the quality of performance, and the quality of service has also been utilized to assess service performance and social competence [91-93].

Numerous investigations have revealed that capital structure affects company performance [22–25]. A study on the effect of capital structure on financial performance dis-covered that short-term debt to the total asset has a statistically insignificant effect on ROA, ROE, and EPS but has a statistically significant effect on Tobin’s Q. The study found that long-term debt to total capital has a positive and statistically significant effect on ROA and ROE, while a negative and statistically insignificant effect is found on EPS and To-bin’s Q [26]. Research on the effect of capital structure on financial performance also found that the total debt ratio has a positive and statistically significant effect on the ROA and ROE of the non-financial institutions in Germany [27]. The examination of the effect of capital structure on financial performance revealed that the total debt to total asset ratio has a positive and statistically significant effect on ROA and ROE. After moderating the capital structure with governance, the total debt to total asset ratio has a positive and statistically insignificant effect on ROA and ROE [28]. Another study found that the debt ratio has a negative and statistically significant effect on ROA and ROE [29]. All those studies did not apply the golden ratio to the capital structure to find the effect of capital structure on financial performance.

The introduction section has benefit from having a clearer structure of what to expect in the paper. Furthermore, the author(s) would benefit from being more concise in their writing, as much of the content was redundant and overemphasized. While it is good practice to assume the reader has no prior knowledge of the content, a topic and/or discussion does not need to be explained over and over again if it is stated both adequately and appropriately once.

Response: Thank you very much for drawing our attention to it. We have taken out those sentences and paragraphs that were repeated in the introduction. For example:

A positive value obtained after deviation from the golden ratio in debt financing, which means that the firms use more debt than the optimal debt requirement of 0.618 in the capital structure. Any negative values obtained after deviation mean that the firms use less debt than the optimal debt requirement of 0.618 in their capital structure. In equity financing by the firms, a positive value obtained after deviation from the golden ratio means the firms are using more equity than the optimal equity requirement of 0.382 in the capital structure. Any negative values obtained after deviation mean that the firms use less equity than the optimal equity requirement of 0.382 in the capital structure.

. It is also found that when the firms in France use debt at a percentage of 61.8% in the capital structure, it could have a positive and significant impact on their financial performance. However, in the case of the U.K., when the firms used debt of 61.8% in the capital structure, the result was poor financial performance. Moreover, poor financial performance was observed when the firm ap-plied debt at a percentage of 61.8% in their debt-to-equity ratio.

So, if a company takes on too much debt, it raises the possibility that it may go bankrupt.

Several studies have also investigated how an optimal financial structure affects a firm's performance. Firstly,

Some conclusions contribute to the study of the problem. The author does not formulate the problem itself – it makes impossible to analyse the contribution of the paper. The aim or the question of the paper (or even the hypothesis of the author) are formulated.

Response: Thank you so much for drawing our attention to it. Below is the statement problem that led us to carry out the study.

Organizations may prefer debt financing to equity financing due to the fixed payment of debt service obligations (interest and principal) and the benefit of a tax shield [13]. Many scholars have argued that when an optimal capital structure is used, it maximizes the shareholders' wealth [14–16]. Miller says the mix of debt and equity does not affect the firm's value [17]. Welch and Swanson advised that the firm's capital structure is optimized when it uses 50% debt and 50% equity [18,19]. Scholars believe that using 50% debt and equity in the capital structure would not benefit the firm. The firm could not enjoy the tax shield benefit and would end up paying the government for their earnings as a tax [20,21].

Properly selecting the percentage of debt and equity in the firm's capital structure leads to better financial performance. To determine the percentage of debt and equity to employ in the capital structure that would benefit the business corporation in achieving higher financial performance, the study used the golden ratio as an optimal capital structure to determine the effect of the golden ratio-based capital structure on financial performance.

Overall, it is very clear to grasp understanding of the manuscript and content in its current state. I strongly advise using hypothesis points to articulate and/or express material in scientific writing. Publication of this piece seems likely in any reputable scientific periodical after a correction in the writing of the manuscript.

Response: We would like to thank you for this delightful and thoughtful comment.

Tables are important to explore the specifics. But should add some conclusions about every table into text to the study of the problem.

Response: We provided the explanations to all the tables in our results and discussion sections that addresses our research problems.

Authors need to add more details on the range of simulation considered in this work should be clearly outlined within the abstract. The current statements are vague and too general to get an idea of the work that have been accomplished.

Response: We have improved our abstract according to your suggestions. Kindly see the new abstract below.

Abstract: This study aims to apply the golden ratio to the capital structure of non-financial institutions in France and the United Kingdom to find the effect of the golden ratio's deviation from the capital structure on the financial performance. A golden ratio is an irrational number with an approximate value of 1.618. In this paper, the golden ratio was applied to develop the assumption that the firm should use debt at a percentage of 61.8% and equity at 38.2%, which deviates from the capital structure variables. The final study sample consisted of 150 non-financial institution firms from France and 200 from the U.K. between 2002 and 2021. In addition, the general method of movement (GMM) was chosen to estimate the effect of capital structure variables deviating from the golden ratio on firms' financial performance. The study results show that when a firm uses equity at a percentage of 38.2% in its capital structure, it can have a positive and significant impact on its financial performance in both France and the U.K. However, the results show that the debt-to-equity ratio deviated from the golden ratio had a negative and statistically significant effect on both countries’ TOBQ, EPS, ROA and ROE. Moreover, the firms' adoption of IFRS can positively and significantly impact financial performance in France and the UK. Generally, managers in France are encouraged to use 38.2% equity and 61.8% debt in their capital structure. However, managers in the U.K. should apply equity of 38.2% and debt of 61.8%, de-pending on the performance measurement demanded.

The paper possesses a proper form of well-structured and readable technical language of the field and represents the expected knowledge of the journal`s readership.

Response: We are really grateful for such thoughtful and nice comment.

There are small errors in English, but this does not affect the general nature of the work. The current study brings many new to the existing literature or field. For one, the author(s) seem to have a good grasp of the current literature on their topic area (i.e., recent literature and seminal texts relevant to their study is not cited/referenced).

Response: The entire manuscript has been checked and edited to improve the quality of the language.

Reviewer 2 Report

The manuscript is well written, attractive for study, and innovative for researchers. It provides a new idea for researchers regarding Golden Ratio-Based Capital Structure on a Firm's Financial Performance. 

The abstract of the manuscript is defined and precise. It also presents technically. However, it has room to extend for explaining however, it should discuss the finding of the study so that the reader generates interest to read the whole paper.

  In the introduction, you need to discuss other empirical work to improve the paper's motivation, broaden the readers' view, and display the contribution of this paper.

Contribution need to explain in depth. Furthermore, the Research contribution parts should be revised accordingly.  

 The methodology and Theoretical analysis of the article is clear and justified by the literature. Better to cite the latest and relevant studies on a similar topic.

The results Section provided enough input. Finally, the policy implication choice deriving from this tool. 

Author Response

The manuscript is well written, attractive for study, and innovative for researchers. It provides a new idea for researchers regarding Golden Ratio-Based Capital Structure on a Firm's Financial Performance. 

Response:  Dear reviewer, to begin, we would want to express our thanks for the time you spent reviewing our work. We really appreciate it.

The abstract of the manuscript is defined and precise. It also presents technically. However, it has room to extend for explaining however, it should discuss the finding of the study so that the reader generates interest to read the whole paper.

Response: We have improved our abstract according to your suggestions. Kindly see the new abstract below.

Abstract: This study aims to apply the golden ratio to the capital structure of non-financial institutions in France and the United Kingdom to find the effect of the golden ratio's deviation from the capital structure on the financial performance. A golden ratio is an irrational number with an approximate value of 1.618. In this paper, the golden ratio was applied to develop the assumption that the firm should use debt at a percentage of 61.8% and equity at 38.2%, which deviates from the capital structure variables. The final study sample consisted of 150 non-financial institution firms from France and 200 from the U.K. between 2002 and 2021. In addition, the general method of movement (GMM) was chosen to estimate the effect of capital structure variables deviating from the golden ratio on firms' financial performance. The study results show that when a firm uses equity at a percentage of 38.2% in its capital structure, it can have a positive and significant impact on its financial performance in both France and the U.K. However, the results show that the debt-to-equity ratio deviated from the golden ratio had a negative and statistically significant effect on both countries’ TOBQ, EPS, ROA and ROE. Moreover, the firms' adoption of IFRS can positively and significantly impact financial performance in France and the UK. Generally, managers in France are encouraged to use 38.2% equity and 61.8% debt in their capital structure. However, managers in the U.K. should apply equity of 38.2% and debt of 61.8%, de-pending on the performance measurement demanded.

  In the introduction, you need to discuss other empirical work to improve the paper's motivation, broaden the readers' view, and display the contribution of this paper.

Response: Thank you for your insight. We have done it accordingly to your suggestion. We have added new literature to the paper as you directed us to do.

Numerous investigations have revealed that capital structure affects company performance [22–25]. A study on the effect of capital structure on financial performance dis-covered that short-term debt to the total asset has a statistically insignificant effect on ROA, ROE, and EPS but has a statistically significant effect on Tobin’s Q. The study found that long-term debt to total capital has a positive and statistically significant effect on ROA and ROE, while a negative and statistically insignificant effect is found on EPS and To-bin’s Q [26]. Research on the effect of capital structure on financial performance also found that the total debt ratio has a positive and statistically significant effect on the ROA and ROE of the non-financial institutions in France [27]. The examination of the effect of capital structure on financial performance revealed that the total debt to total asset ratio has a positive and statistically significant effect on ROA and ROE. After moderating the capital structure with governance, the total debt to total asset ratio has a positive and statistically insignificant effect on ROA and ROE [28]. Another study found that the debt ratio has a negative and statistically significant effect on ROA and ROE [29]. All those studies did not apply the golden ratio to the capital structure to find the effect of capital structure on financial performance.

  Ulbert [30] used the golden ratio in the capital structure of manufacturing and ser-vice companies in the USA and Europe to find out how it boosts their financial performance. The study used total assets, total revenue, net income, and closing price as de-pendent variables and shareholder equity as independent variables. Extensive studies as to how the application of the golden ratio to the capital structure of firms can ascertain their impact on firm financial performance have not been explored to the best of our knowledge.

Consequently, this study has numerous contributions to the literature. Firstly, the investigating the effect of a golden ratio-based capital structure on the financial performance of firms using a sample company from France and the U.K., where the firm’s debt-to-equity ratio indicates that the firm used a greater percentage of debt than equity. Therefore, based on the principle of the golden ratio, the ratio of two-line segments, one longer than the other, equals the ratio of the bigger segment to the shorter segment. Therefore, the study assumed that 61.8% represented debt, the longest line segment, and 38.2% represented equity, the shortest line segment. Secondly, the study also contributes to the literature by finding the effect of capital structure (EYTRAT, CAPRAT, DEEUTY, STTTTA, and LTTTTA) deviating from the golden ratio on financial performance (ROA, ROE, EPS, and Tobin’s Q), where CAPRAT, DEEUTY, STTTTA, and LTTTTA present debt and EY-TRAT present equity, where their results have not yet been discovered in the literature.

Contribution needs to explain in depth. Furthermore, the Research contribution parts should be revised accordingly.  

Response: The contribution has been revised as you suggested and explanation has been given in detail.

Consequently, this study has numerous contributions to the literature. Firstly, the investigating the effect of a golden ratio-based capital structure on the financial performance of firms using a sample company from France and the U.K., where the firm’s debt-to-equity ratio indicates that the firm used a greater percentage of debt than equity. Therefore, based on the principle of the golden ratio, the ratio of two-line segments, one longer than the other, equals the ratio of the bigger segment to the shorter segment. There-fore, the study assumed that 61.8% represented debt, the longest line segment, and 38.2% represented equity, the shortest line segment. Secondly, the study also contributes to the literature by finding the effect of capital structure (EYTRAT, CAPRAT, DEEUTY, STTTTA, and LTTTTA) deviating from the golden ratio on financial performance (ROA, ROE, EPS, and Tobin’s Q), where CAPRAT, DEEUTY, STTTTA, and LTTTTA present debt and EY-TRAT present equity, where their results have not yet been discovered in the literature.

 The methodology and Theoretical analysis of the article is clear and justified by the literature. Better to cite the latest and relevant studies on a similar topic.

Response: We have cited some latest topics to the study. Kindly see the changes.

Numerous investigations have revealed that capital structure affects company performance [22–25]. A study on the effect of capital structure on financial performance dis-covered that short-term debt to the total asset has a statistically insignificant effect on ROA, ROE, and EPS but has a statistically significant effect on Tobin’s Q. The study found that long-term debt to total capital has a positive and statistically significant effect on ROA and ROE, while a negative and statistically insignificant effect is found on EPS and To-bin’s Q [26]. Research on the effect of capital structure on financial performance also found that the total debt ratio has a positive and statistically significant effect on the ROA and ROE of the non-financial institutions in France [27]. The examination of the effect of capital structure on financial performance revealed that the total debt to total asset ratio has a positive and statistically significant effect on ROA and ROE. After moderating the capital structure with governance, the total debt to total asset ratio has a positive and statistically insignificant effect on ROA and ROE [28]. Another study found that the debt ratio has a negative and statistically significant effect on ROA and ROE [29]. All those studies did not apply the golden ratio to the capital structure to find the effect of capital structure on financial performance.

The results Section provided enough input. Finally, the policy implication choice deriving from this tool. 

Response: We are grateful for timely effort to provide us with such comments.

Reviewer 3 Report

It is important to note that the study is limited to the firms in the U.K. and French stock markets, and the findings may not be generalizable to other markets. Additionally, the study assumes that the firm's debt and equity percentages used in the capital structure should be 0.618 and 0.382, respectively, based on the golden ratio, which may not hold true for all firms.

Author Response

Comments and Suggestions for Authors

It is important to note that the study is limited to the firms in the U.K. and French stock markets, and the findings may not be generalizable to other markets. Additionally, the study assumes that the firm's debt and equity percentages used in the capital structure should be 0.618 and 0.382, respectively, based on the golden ratio, which may not hold true for all firms.

Response:  Thank you so much for drawing our attention. We have stated your thoughtful suggestion at the limitation of the study that “the study is limited to the firms in the U.K. and French stock markets, and the findings may not be generalizable to other markets. Additionally, the study assumes that the firm's debt and equity percentages used in the capital structure should be 0.618 and 0.382, respectively, based on the golden ratio, which may not hold true for all firms”

Reviewer 4 Report

 It would be good if the study is conducted separately for companies from each industry. This is because the formula for an optimal capital structure can differ from industry to industry due to its business nature. A sample breakdown based on the industries would be suitable for this purpose. 

Author Response

It would be good if the study is conducted separately for companies from each industry. This is because the formula for an optimal capital structure can differ from industry to industry due to its business nature. A sample breakdown based on the industries would be suitable for this purpose. 

Response:  Dear reviewer, to begin, we would want to express our thanks for the time you spent reviewing our work. We appreciate your comments; for more information, please look at the table (1) that was provided as you suggested. We created a new table for the firms’ classification by the sector for France and the United Kingdom.

Table 1. Firm classification by the sector for France and the United Kingdom.

Reviewer 5 Report

1-It is really unclear where the scholarship and academic challenge lies i.e. the rationale for conducting this research is not clear. There is a lack of scholarship, justification for the research or potential impact (at least detailing what it might be, would have been good). 

2- There should be conclusions around the background theory, data theory/analysis and, key outcomes.

Author Response

Comments and Suggestions for Authors

1-It is really unclear where the scholarship and academic challenge lies i.e. the rationale for conducting this research is not clear. There is a lack of scholarship, justification for the research or potential impact (at least detailing what it might be, would have been good). 

Response:  Dear reviewer, to begin, we would want to express our thanks for the time you spent reviewing our work. We really appreciate it. We have provided the justification and rationale behind our study as shown below.

Organizations may prefer debt financing to equity financing due to the fixed payment of debt service obligations (interest and principal) and the benefit of a tax shield [13]. Many scholars have argued that when an optimal capital structure is used, it maximizes the shareholders' wealth [14–16]. Miller says the mix of debt and equity does not affect the firm's value [17]. Welch and Swanson advised that the firm's capital structure is optimized when it uses 50% debt and 50% equity [18,19]. Scholars believe that using 50% debt and equity in the capital structure would not benefit the firm. The firm could not enjoy the tax shield benefit and would end up paying the government for their earnings as a tax [20,21]. Properly selecting the percentage of debt and equity in the firm's capital structure leads to better financial performance. To determine the percentage of debt and equity to employ in the capital structure that would benefit the business corporation in achieving higher financial performance, the study used the golden ratio as an optimal capital structure to determine the effect of the golden ratio-based capital structure on financial performance.

Numerous investigations have revealed that capital structure affects company performance [22–25]. A study on the effect of capital structure on financial performance dis-covered that short-term debt to the total asset has a statistically insignificant effect on ROA, ROE, and EPS but has a statistically significant effect on Tobin’s Q. The study found that long-term debt to total capital has a positive and statistically significant effect on ROA and ROE, while a negative and statistically insignificant effect is found on EPS and To-bin’s Q [26]. Research on the effect of capital structure on financial performance also found that the total debt ratio has a positive and statistically significant effect on the ROA and ROE of the non-financial institutions in Germany [27]. The examination of the effect of capital structure on financial performance revealed that the total debt to total asset ratio has a positive and statistically significant effect on ROA and ROE. After moderating the capital structure with governance, the total debt to total asset ratio has a positive and statistically insignificant effect on ROA and ROE [28]. Another study found that the debt ratio has a negative and statistically significant effect on ROA and ROE [29]. All those studies did not apply the golden ratio to the capital structure to find the effect of capital structure on financial performance.

Ulbert [30] used the golden ratio in the capital structure of manufacturing and ser-vice companies in the USA and Europe to find out how it boosts their financial performance. The study used total assets, total revenue, net income, and closing price as de-pendent variables and shareholder equity as independent variables. Extensive studies as to how the application of the golden ratio to the capital structure of firms can ascertain their impact on firm financial performance have not been explored to the best of our knowledge. Accordingly, this study seeks to answer the following questions: (1) To what extent does golden ratio-based capital structure affect firm performance in the UK and France? (2) what percentage of debt and equity a firm should use in its capital structure to obtain optimal capitalization? (3) Does the IFRS adoption effect firm financial performance?

2- There should be conclusions around the background theory, data theory/analysis and, key outcomes.

Response: We are grateful for the information. We have modified our conclusion of the study.

The proper selection of debt and equity contributes to higher financial performance. Firms prefer using debt to equity due to the benefits of debt financing. The greater per-centage of debt also diluted the ownership and control of shareholders. The use of debt is cheaper than the use of equity. The use of debt involves the fixed payment of interest, while the use of equity involves the payment of dividends to shareholders, which are not fixed but based on the earnings declared by the corporation. Therefore, properly selecting debt and equity in the capital structure led to higher and better financial performance. The pecking order theory suggests that firms should use internally generated funding first, followed by debt and equity. In using debt and equity, the percentage of debt and equity should be used as it is not specified in the literature.

For this reason, the study applies the golden ratio as an optimal capital structure to find the effect of a golden ratio-based capital structure on financial performance using firms from the U.K. and French stock markets. This paper chose a purposive sampling technique to obtain 200 firms in the U.K. and 150 firms in France. The data from all selected companies from 2002 to 2021 was selected and used. The general method of movement (GMM) was applied to estimate the impact of the golden ratio of the firm's capital structure on financial performance. The golden ratio to the capital structure of the firms has been examined. It is assumed that the firm's debt and equity percentages used in the capital structure should be 0.618 and 0.382, respectively.   

From the results of this study, it can be concluded that when a firm uses EYTRAT at a percentage of 38.2% in the capital structure, it can positively and significantly impact the financial performance of France and the U.K. However, this paper found that the DEEUTY ratio, which deviates from the golden ratio for both firms in France and the U.K., has a negative and significant impact on TOBQ, EPS, ROA, and ROE. When the firms used debt to the tune of 0.618, it had a negative impact on their financial performance. In France, the CAPRAT ratio that deviates from the golden ratio has a positive and significant impact on TOBQ, EPS, ROA, and ROE. In the U.K., the CAPRAT ratio that deviated from the golden ratio had a negative and statistically significant impact on TOBQ, EPS, ROA, and ROE. In France, it was found that LTTTTA that deviated from the golden ratio had a negative and statistically significant impact on TOBQ, EPS, ROA, and ROE. However, this research determined that LTTTTA that deviated from the golden ratio had a negative impact on TOBQ and ROA in the U.K. It is also concluded that adopting IFRS by both firms in the two countries had a positive and significant impact on TOBQ, EPS, ROA, and ROE. The study found that the 2008 financial crisis had a negative and significant impact on TOBQ, EPS, ROA, and ROE.

The study contributes to the literature by investigating the effect of golden-ratio-based capital structure deviance on financial performance using a sample of non-financial institutions from France and the U.K. The study also contributes to the literature by finding that the effect of capital structure (EYTRAT, CAPRAT, DEEUTY, STTTTA, and LTTTTA) deviates from the golden ratio on financial performance (TOBQ, EPS, ROA and ROE).

Round 2

Reviewer 5 Report

The changes and corrections made are acceptable.

Author Response

Response: We would want to express our thanks for the time you spent reviewing the second round of our work. We have made some more required modification our manuscript of the study. Also, the entire manuscript has been checked and edited to improve the quality of the English language. Kindly see the new manuscript.

Is the content succinctly described and contextualized with respect to previous and present theoretical background and empirical research (if applicable) on the topic?

Response: Thank you for your insight. We have done it according to your suggestions. We have added new literature to the paper as you directed us to do. Kindly see the changes.

Numerous investigations have revealed that capital structure affects company performance [22–25]. A study on the effect of capital structure on financial performance dis-covered that short-term debt to the total asset has a statistically insignificant effect on ROA, ROE, and EPS but has a statistically significant effect on Tobin’s Q. The study found that long-term debt to total capital has a positive and statistically significant effect on ROA and ROE, while a negative and statistically insignificant effect is found on EPS and To-bin’s Q [26]. Research on the effect of capital structure on financial performance also found that the total debt ratio has a positive and statistically significant effect on the ROA and ROE of the non-financial institutions in Germany [27].

The examination of the effect of capital structure on financial performance revealed that the total debt to total asset ratio has a positive and statistically significant effect on ROA and ROE. After moderating the capital structure with governance, the total debt to total asset ratio has a positive and statistically insignificant effect on ROA and ROE [28]. According to another study the debt ratio has a negative and statistically significant effect on ROA and ROE [29]. All those studies did not apply the golden ratio to the capital structure to find the effect of capital structure on financial performance.

Ulbert [30] used the golden ratio in the capital structure of manufacturing and service companies in the USA and Europe to find out how it boosts their financial performance. The study used total assets, total revenue, net income, and closing price as dependent variables and shareholder equity as independent variables. Extensive studies as to how the application of the golden ratio to the capital structure of firms can ascertain their im-pact on firm financial performance have not been explored to the best of our knowledge.

Are the arguments and discussion of findings coherent, balanced and compelling?

Response: We have added more discussions as per your suggestions. Kindly see the changes.

In France, the CAPRAT ratio was seen to have a positive and statistically significant impact on the ROA of the firms, and the results are the same as the findings obtained from a Turkish study [24]. In both countries, the results showed that the DEEUTY ratio and LTTTTA that deviated from the golden ratio had a negative and significant impact on ROA, and the results are consistent with the findings obtained by the following researchers [84-86]. The adoption of IFRS by firms in both countries has a positive and statistically significant impact on ROA, and the findings match the results obtained by Abdullah & Tursoy [27].

In the UK, it was determined that the CAPRAT ratio of firms that deviated from the golden ratio had a negative impact on ROE, and the results are consistent with the findings of a prior study [81]. In both countries, the study found that the DEEUTY ratio that deviated from the golden ratio had a negative and significant impact on ROE, and the results are consistent with the findings of earlier research [88]. In France, we found that LTTTTA, which deviates from the golden ratio, has a negative impact on ROE, while in the UK, it has a positive impact on ROE. The positive impact of the firms in the UK deviating from the golden ratio in terms of LTTTTA is consistent with the findings of previous studies [89,90].

The positive effect of STTTTA deviating from the golden ratio on EPS by the firms in both countries supports the claim in Proposition II that leverage improves a company's value and lowers its weighted average cost of capital [82].