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Determinants of Capital Structure and Testing of Applicable Theories: Evidence from Pharmaceutical Firms of Bangladesh

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  • Md. Farhan Imtiaz
  • Khaled Mahmud
  • Avijit Mallik

Abstract

The objectives of this paper are to determine the significant factors that affect the capital structure of listed pharmaceutical firms in Bangladesh and to test the capital structure theories. To achieve the intended objectives a panel dataset including 8 major pharmaceutical firms were taken over the time period from 2009 to 2013. The collected data were analyzed by employing correlated panels corrected standard error model using six variables i.e. profitability, tangibility, growth, size, liquidity and operating leverage. Among the 6 variables tangibility, profitability and operating leverage were found to be statistically significant determinants of capital structure. Profitability, tangibility, growth and operating leverage are negatively related to the capital structure while size and liquidity are positively related to the capital structure of the pharmaceutical firms of Bangladesh. The empirical analysis finds that the static trade-off theory and the pecking order theory are the most dominant capital structure theories for the pharmaceutical firms of Bangladesh. These factors must be considered by the financial manager to determine the appropriate capital structure for the company to maximize value of the firm.

Suggested Citation

  • Md. Farhan Imtiaz & Khaled Mahmud & Avijit Mallik, 2016. "Determinants of Capital Structure and Testing of Applicable Theories: Evidence from Pharmaceutical Firms of Bangladesh," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 8(3), pages 23-32, March.
    • Handle: RePEc:ibn:ijefaa:v:8:y:2016:i:3:p:23-32
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    References listed on IDEAS

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    Cited by:

    1. Ummay Mahima Ima & Nurun Nahar, 2022. "Capital Structure Determinants: Evidence from Pharmaceuticals & Chemicals Industry of Bangladesh," International Journal of Science and Business, IJSAB International, vol. 13(1), pages 122-130.
    2. Maziar Ghasemi & Nazrul Hisyam Ab Razak* & Komeil Dehghani, 2018. "Determinants of Debt Structure in Ace Market Bursa Malaysia: A Panel Data Analysis," The Journal of Social Sciences Research, Academic Research Publishing Group, pages 390-395:6.
    3. Maya Sari, 2019. "Firm Size as Moderator to Capital Structure-Its Determinants Relations," GATR Journals jfbr163, Global Academy of Training and Research (GATR) Enterprise.
    4. Haifeng Hu & Minjing Qi, 2022. "New Evidence on National Culture and Corporate Financing: Does Institutional Quality Matter?," Sustainability, MDPI, vol. 14(19), pages 1-24, October.
    5. Jędrzejczak-Gas Janina, 2017. "Determinants of the capital structure of TSL sector enterprises," Management, Sciendo, vol. 22(1), pages 122-139, September.

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    More about this item

    Keywords

    capital structure; trade-off theory; pecking order theory; agency cost theory; leverage; pharmaceutical firms; Bangladesh;
    All these keywords.

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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