Capital Structure And MNC Profitability: Empirical Evidence From Bangladesh
Capital Structure is one of the most important issues researched on, in the field of corporate finance. The fundamental components of capital structure are debt and equity of a company. Though different researchers provide different comment on the theories of optimumcapital structure, majority of theories and findings seem contradictory in terms of developed and developing economy. Practitioners as well as researchers all over the world have identified that capital structure has impact on the firm performance. In Bangladesh, area of research in capital structure is not adequate and require intense empirical work. Moreover, there is a research gap in this area, especially for Multinational Companies (MNCs). Usage of leverage and capital structure varies significantly between MNCs and domestic firms, due to their differences in ownership structure and other factors. With that gap in mind, objective of this study was to investigate the significance of determining factors of capital structure on MNC firm profitability of Bangladesh. It is a cross-sectional research, analyzing various MNCs listed in the Dhaka Stock Exchange (DSE). Data for these MNCs were collected and analyzed from their audited annual reports. 11 years of data, from 2006 till 2016 were used, considering 10 MNCs listed in the DSE. Ordinary Least Squares (OLS) method was used for estimating the unknown parameters in a multiple regression model. Return OnAsset (ROA) and Return On Equity (ROE) were considered proxies for firm profitability. Findings of this data show that Short term debt to asset ratio, Debt to equity ratio and Tangibility were statistically significant with ROA as the dependent variable. While considering ROE as the dependent variable, Long term debt to asset ratio, Short term debt to asset ratio, Firm size and Firm age were found to be significant at 10% significance level.
Keywords: Capital Structure, Firm Profitability, MNC, Bangladesh