Influence of Capital Structure on Firm Performance: Evidence from Bangladesh

Abstract

This paper mainly studies the influence of capital structure on firm's performance. This investigation has been performed on a sample of 36 Bangladeshi firms listed in Dhaka Stock Exchange during the period 2007-2012. We have used four performance measures; earnings per share (EPS), return on equity (ROE), return of asset (ROA) and Tobin's Q; as dependent variables and three capital structure ratios; short-term debt, long-term debt and total debt ratios; as independent variables. Using pooling panel data regression method, we found that EPS is significantly positively related to short-term debt while significantly negatively related to long-term debt. There is significant negative relation between ROA and capital structure. On the other hand, there is no statistically significant relation exists between capital structure and firm's performance as measured by ROE and Tobin's Q. Nonetheless, aside from the positive relation between EPS and STDTA, we can conclude that capital structure has negative impact on firm's performance which is consistent with the proposition of Pecking Order Theory.

Firm Profitability and Capital Structure: An Empirical Study on the Listed It Companies of Bangladesh

“…However, it contradicts with the findings of Khatab et al [34] whose findings have shown an insignificant relation between profitability and firm size. Positive relation between growth and profitability found in this study is consistent with studies by: Chowdhury and Chowdhury [4]; Hasan et al [13]; Zeiun and Tian [19]; and, Sharma and Handoo [35].…”

“…However, no one optimal capital structure could be determined, as profitability and capital structure tend to vary for firms: operating in different industry; of variable size; and, operating in diverse economies [7]. Bali (Indonesia) Jan. [12][13]2018 Even though extensive empirical research has been conducted to study the relationship between capital structure and firm performance, little research has focused on IT industry and even less on Bangladesh. Therefore, the objective of this paper is to examine the capital structure determinants affecting the profitability of IT companies in Bangladesh, by using a sample of five IT companies listed in the Dhaka Stock Exchange for the period 2007-2015.…”

Capital Structure Influence on Construction Firm Performance

“…The insignificant relationship between the STDR and accounting based measure which is ROA indicates that STDR has no significant impact on returns of construction firms in Malaysia. This result is consistent with the study by Ebrati, Emadi, Balasang, and Safari (2013), Hamid, Abdullah, and, Kamaruzzaman (2015), Hasan, Ahsan, Rahaman, and Alam (2014), Khan (2012), Olokoyo (2013), andTaani (2013). Table 2 also shows that the relationship between LTDR and ROA in construction firms in Malaysia is not statistically significant (LTDR: β = -1.6402, p > 0.05).…”

“…Thirdly, Salim and Yadav (2012) used Pooled Ordinary Least Square (POLS) method to analyse their data which is generally known that the method are unable to control the individual or time-specific effect or in another term is called unobserved effect (Hasan et al, 2014;Manawaduge, Zoysa, & Chowdhury, 2011;and Seetanah, Seetah, Appadu, & Padachi, 2014). Thus, this will allow heterogeneity bias to occur that arise due to the omitting a time constant variable (Wooldridge, 2015).…”

“…As such various studies were conducted to examine the effect of capital structure decision and firm performance (Adami, Gough, Muradoğlu, & Sivaprasad, 2013;Collins, Filibus, & Clement, 2012;David & Olorunfemi, 2010;Dawar, 2014;Hasan, Ahsan, Rahaman, & Alam, 2014;John, 2013;Khan, 2012). There are numerous research conducted to examine the relationship between capital structure and firm performance in developing countries such as Nigeria (Akeem, K, Kiyanjui, & Kayode, 2014;Collins et al, 2012;David & Olorunfemi, 2010), India (Chisti, Ali, & Sangmi, 2013;Dawar, 2014), Bangladesh (Hasan et al, 2014) and Jordan (Zeitun & Tian, 2007). As for example research conducted by Zeitun and Tian (2007) in Jordan which aim to investigate and examine the effect of capital structure on corporate performance using a panel data sample representing of 167 Jordanian companies during [1989][1990][1991][1992][1993][1994][1995][1996][1997][1998][1999][2000][2001][2002][2003].…”