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Debt and profitability: evidence from Bangladesh

Author

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  • Mumtahina Islam
  • G.M. Wali Ullah

Abstract

This study investigates the relationship of different capital structure determinants with the profitability of multinational companies (MNC) in order to determine the optimal choice of the capital structure. We have used the financial statements of 10 MNC listed in the Dhaka Stock Exchange (DSE) in Bangladesh in the year 2006-2017. The profitability is measured using the return on assets (ROA) and the return on equity (ROE). Data are analysed using multiple panel regression which reveals that the financial ratios, namely, the long term debt (LTD) and debt to equity (DE) are the significant variables in predicting the optimal capital structure of those MNC. The research findings imply that MNC financial managers should avoid long-term debt financing and therefore rely more on short-term financing options from the perspective of the capital market in Bangladesh.

Suggested Citation

  • Mumtahina Islam & G.M. Wali Ullah, 2020. "Debt and profitability: evidence from Bangladesh," International Journal of Monetary Economics and Finance, Inderscience Enterprises Ltd, vol. 13(4), pages 362-382.
    • Handle: RePEc:ids:ijmefi:v:13:y:2020:i:4:p:362-382
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