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

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  • Md. Ataur Rahman
  • Md. Sadrul Islam Sarker
  • Md. Joyen Uddin

Abstract

This research explores the impact of capital structure on the profitability of publicly traded manufacturing firms in Bangladesh. In this paper, we applied the fixed effect regression to find out the correlation among independent variables (debt ratio, equity ratio and debt to equity ratio) and dependent variables (return on asset, return on equity and earnings per share). A sample of 50 observations of selected 10 manufacturing companies listed in Dhaka Stock Exchange has been analyzed over the period of 2013 to 2017. This research reveals that the debt ratio and equity ratio have a significant positive impact but debt to equity ratio has a significant negative impact on ROA. This paper also exposes that, equity ratio has a significant positive impact but debt to equity ratio has a significant negative impact on ROE. Finally, debt and equity ratio has a significant negative impact on EPS. Findings of this research will help the listed manufacturing companies to maintain an optimum capital structure which will lead to the maximization of stockholders wealth.

Suggested Citation

  • Md. Ataur Rahman & Md. Sadrul Islam Sarker & Md. Joyen Uddin, 2019. "The Impact of Capital Structure on the Profitability of Publicly Traded Manufacturing Firms in Bangladesh," Applied Economics and Finance, Redfame publishing, vol. 6(2), pages 1-5, March.
    • Handle: RePEc:rfa:aefjnl:v:6:y:2019:i:2:p:1-5
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    References listed on IDEAS

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    5. Rafiu Oyesola Salawu, 2009. "The Effect Of Capital Structure On Profitability: An Empirical Analysis Of Listed Firms In Nigeria," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 3(2), pages 121-129.
    6. Lawal Babatunde Akeem & Edwin Terer K. & Monica Wanjiru Kiyanjui & Adisa Matthew Kayode, 2014. "Effects of Capital Structure on Firm’s Performance: Empirical Study of Manufacturing Companies in Nigeria," Journal of Finance and Investment Analysis, SCIENPRESS Ltd, vol. 3(4), pages 1-4.
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    Cited by:

    1. Stephanie M. Chondough, 2022. "The Effect Of Capital Structure On Earnings Per Share Of Publicly Traded Companies: A Review Of Related Literature," Oradea Journal of Business and Economics, University of Oradea, Faculty of Economics, vol. 7(special), pages 111-119, June.
    2. Udobi-Owoloja, P. I. & Gbajumo-Sheriff, M.A. & Umoru, B. & Babatunde, S.A & Ilimezekhe, D, 2020. "Capital Structure and Firm’s Profitability: Evidence From Listed Consumer Goods Sector in Nigeria," Journal of Accounting, Business and Finance Research, Scientific Publishing Institute, vol. 9(2), pages 50-56.

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    More about this item

    Keywords

    optimum capital structure; ROA; ROE; EPS; Bangladesh;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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