Leverage structure decisions in Bangladesh: managers and investors’ view

Abstract

The paper investigates the impact of managers' and investors' perceptions on financial leverage decisions in Bangladesh. To fulfill the purpose of the paper, the final structure of the questionnaire was made by adopting pretesting and assessment of outer factor loadings and measures the internal consistency of all items in the test or scale using Cranach's Alpha. The composite reliability (CR) was tested by calculating the composite alpha and average variance extracted (AVE). The study employs partial least square structural equation modeling (PLS-SEM) to investigate the structured relationship between the observed and latent variables and extends the path analysis to test the hypotheses. The study reveals that corporate governance significantly and positively influences the leverage structure decision. The result intends to establish that if firms serve corporate governance, it will make the firms to manage more debt into the leverage structure decision. Results also reveal a negative and significant association between the determinants and financial leverage structure decision, and this relation signifies that when determinants tend to upturn, outside borrowing will fall into the financial leverage structure decision. The policy implications advanced from this study include the transformation of ownership structure, corporate governance, and financial policy to facilitate proper leverage structure decisions.

Do Determinants Influence the Capital Structure Decision in Bangladesh? A Panel Data Analysis

“…Second, despite the possession of large fixed assets, firms tend to have limited access to the debt market; whereas, firms with less fixed assets enjoy a greater access to debt due to their familial and political affiliation. This result is supported by earlier evidences (Uddin, 2021;Ahmed et al, 2010). The results also indicated that large firms tend to have a fewer debt owing to their dependence on retained earnings.…”

“…(iv) The nature of ownership of Bangladeshi firms differs from those of developed countries to some extents; as an instance, firms in Bangladesh are considered for approval based on their political affiliation rather than their professionalism. Hence, the basis of financial decisions may not agree with the research findings from developed countries (Uddin, 2021). Furthermore, to the best of our knowledge, reasons why firms failed to consider all factors for capital structure decision in Bangladesh were not investigated in the previous studies.…”

“…(ii) There is a growing concern that companies are run by few families and politicians who are not trained professionally. Such ownership structures seriously damage the corporate governance system and ultimately affect the capital structure decision, while, in developed countries; ownership structure concentrates on dispersed shareholders and is operated by professional managers (Uddin, 2021). Hence, the study will explore the main challenges to the development of actual corporate financial policies that addresses ownership and corporate governance issues.…”

Masih Relevankah Teori Portofolio Modern?

“…Hutang sebagai peluang sekaligus ancaman yang harus diwaspadai, bauran pembiayaan perusahaan antara utang dan ekuitas haruslah optimal (Coulon, 2019; Uddin, 2021). Rasio hutang dapat diukur dengan membandingkan proporsi relatif hutang dengan ekuitas (Zutter & Smart, 2019), atau lebih dikenal dengan debt to equity rasio atau leverage rasio.…”

Leverage Structure Dynamics and Firm Value

“…Such policies are frequently chosen based on the views of shareholders, directors and management. Managers often select a leveraging structure that enables achievement of their firms aim (Uddin, 2021). This leverage structure provides a framework of the weighted average costs of the fund and firm value.…”