The Impact of Capital Structure on the Profitability of Publicly Traded Manufacturing Firms in Bangladesh

Pinglu

et al. 2020

Heliyon

The study aimed to analyse the role of the capital structure in the financial performance of 90 textile firms listed in Pakistan Stock Exchange (PSX) during the period 2008–2017. The dependent variable was return on equity as a proxy for financial performance. The independent variables were the debt to equity, total debt to total assets, asset turnover ratios, sales growth, taxation, and export growth, while the firm size was taken as a control variable. The panel regression estimation technique was employed for analysis purposes, and both cross-sectional and time-series data were collected for this study. This study used the random-effect regression estimation model based on the Hausman diagnostic test statistics. The results indicate that the capital structure debt to equity variable has a negative and significant relationship with financial performance while the asset turnover ratio and firm performance showed a negative and statistically insignificant relationship. Export growth and sales growth have a considerable positive connection with financial performance; however, firm size has a negative and significant impact on firm performance, in favour of our alternative research hypothesis. The remaining variables include tax payable and the total debt to total assets ratio, which have an insignificant connection with financial performance (ROE) and validate the agency theory. With better corporate governance by putting more pressure on managers or increasing managerial ownership, institutional investors can reduce the capital, leverage risk and the overall firm capital cost that help to improve the firm's financial performance and economic stability.

Section: Resultssupporting

confidence: 91%

“… Rahman et al. (2019) explored the effect of the capital structure on the profitability of publicly traded manufacturing firms in Bangladesh.…”

Section: Literature Reviewmentioning

confidence: 99%

The nexus between capital structure, firm-specific factors, macroeconomic factors and financial performance in the textile sector of Pakistan

Pinglu

et al. 2020

Heliyon

KOYA UNIV J HUM SOC SCI

“…The study noticed that debt ratio has negative effect on ROA, debt equity ratio has a negative impact on ROE, and size is positively linked with ROE. However, in a recent study conducted on 10 firms listed in Dhaka stock exchange from the period of 2013 to 2017 by Rahman et al (2019) who found that debt ratio and equity ratio have positive impact on ROA, while they found that debt to equity has negative impact on ROA.…”

Section: Literature Reviewmentioning

confidence: 94%

“…The system of the banking structure in Iraq is divided into four groups, such as public banks, survive without capital and these capitals come from different sources, such as debts and equity. Muhammad et al (2014), Pinto et al (2017), Mouna et al (2017), Musah (2017), Mehar (2018) and Rahman et al (2019) believe that an important decision in each financial institution is capital structure. For instance, Tanni (2013) believes that a major topic in finance nowadays is capital structure.…”

Section: Introductionmentioning

confidence: 99%

Impacts of Capital Structure on Bank Performance

Ibrahim

2019

Purpose: This study studies the effect of capital structure on the performance of some Iraqi private banks. Six banks based in Iraq namely: Babylon bank, Investment bank, Credit bank, Commercial bank, Sharq Al-Awsat bank, and Baghdad bank were selected for the present study over the period 2005 to 2015. Methodology: Annual reports of these banks were studied and relevant ratios were calculated. The variables that were identified as independent for capital structure were total debt to capital, bank size and asset growth, while return on assets and return on equity were considered to be dependent variables for bank performance. The panel Least Square model has been used to examine the impact of capital structure on bank performance. Findings: Outcomes indicate that none of the independent variables has a significant impact on return on assets (ROA), while total debt to capital (TDC) has a positive impact on return on equity (ROE). Originality: Depending on this result, Iraqi banks should keep sufficient amount of capital to avoid any financial risks and increase the probability of survival.

“…Greater proportion of debt is preferred by investors in a country where debt interest is tax deductible. Firms use a mix of debt and equity in various proportions in order to maximize the overall market value of the firm (Rahman, Sarker & Uddin, 2019).…”

Section: Literature Review 21 Capital Structurementioning

confidence: 99%

Capital Structure and Profitability of Downstream Oil and Gas Firms Listed in Nigeria

2020

RJFA

The Nigerian downstream oil and gas sector in the last few years have witnessed a plethora of challenges such as infrastructural decay, rising cost of importation of petroleum products (fuel, diesel, aviation fuel and kerosene) which is a fallout of breakdown of the nation's refineries. The study examined the impact of capital structure on the profitability of firms in the downstream sector of the oil and gas industry in Nigeria from 2000 to 2018. This study adopted an ex-post facto research design. The study employed a dynamic panel system equation of generalized method of moment. Secondary data were sourced from the annual reports of the 8 selected oil and gas companies listed in Nigeria. The study applied descriptive statistics, correlation, and unit root test as well as inferential statistics. Inferences were made at 5 percent significant level. Results showed that Debt Capital ratio had a negative and significant relationship with ROA (β =-0.0257, t=-5.147, p<0.05). Also, Equity Capital ratio had a positive and significant relationship with current ROA (β = 0.228, t=5.3015p<0.05). Lastly, Interest Rate had a positive and insignificant relationship with current ROA (β = 0.247, t=4.3521, p<0.05). The study concluded that while debt capital ratio had a significant inverse effect on firms' profitability, equity capital ratio had a positive and significant effect on the profitability of the selected oil and gas firms. The result also affirmed that interest rate had a positive and insignificant effect on profitability of selected oil and gas firms. The study recommended that Oil and Gas sector should increase equity financing and reduce debt financing. This equity can be enhanced through increased in the amount of ploughed back profit/retained earnings and bonus issue.