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Impact of capital structure on firm’s value: Evidence from Bangladesh

Author

Listed:
  • Anup Chowdhury

    (BRAC Business School, BRAC University, Bangladesh.)

  • Suman Paul Chowdhury

    (BRAC Business School, BRAC University, Bangladesh.)

Abstract

Modigliani & Miller (1958) show the impact of debt-equity ratio on firm value in their capital structure theory. Economist and financial researchers have spent time to develop new thoughts around this theory. Despite their effort the Modigliani & Miller (MM) model is still in vague. In this paper attempt has been made to empirically support the argument of MM. The paper tests the influence of debt-equity structure on the value of shares given different sizes, industries and growth opportunities with the companies incorporated in Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE) of Bangladesh. For the robustness of the analysis samples are drawn from the four most dominant sectors of industry i.e. engineering, food & allied, fuel & power, and chemical & pharmaceutical to provide a comparative analysis. A strong positively correlated association is evident from the empirical findings when stratified by industry.

Suggested Citation

  • Anup Chowdhury & Suman Paul Chowdhury, 2010. "Impact of capital structure on firm’s value: Evidence from Bangladesh," Business and Economic Horizons (BEH), Prague Development Center, vol. 3(3), pages 111-122, October.
    • Handle: RePEc:pdc:jrnbeh:v:3:y:2010:i:3:p:111-122
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    References listed on IDEAS

    as
    1. MacKie-Mason, Jeffrey K, 1990. "Do Taxes Affect Corporate Financing Decisions?," Journal of Finance, American Finance Association, vol. 45(5), pages 1471-1493, December.
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    More about this item

    Keywords

    Capital structure; firm value; wealth maximization; time series; leverage decision.;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G3 - Financial Economics - - Corporate Finance and Governance

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