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Capital Structure Determinants: Evidence from Pharmaceuticals & Chemicals Industry of Bangladesh

Author

Listed:
  • Ummay Mahima Ima

    (Department of Business Administration in Financing & Banking, Bangladesh University of Professionals, Mirpur Cantonment, Dhaka, Bangladesh.)

  • Nurun Nahar

    (Department of Business Administration (DBA), Bangladesh Army University of Science and Technology, Saidpur Cantonment, Nilphamari, Bangladesh.)

Abstract

This paper aims to determine the factors affecting the capital structure choice of a company. Panel data of 15 listed pharmaceuticals and chemicals companies of Bangladesh have been chosen for this study. A multiple regression model was applied here to find out the determinants of capital structure by using this panel data. It considered agency cost of equity, agency cost of debt, bankruptcy risk, growth rate, profitability ratio, and operating leverage as determinants of the leverage level of a firm. The study presented that an 87% variation in the debt ratio of the companies in the pharmaceuticals & chemicals industry can be explained by the variables selected for this study. That means the regression is a good fit for the study. All six determiners except growth rate showed a significant impact on the capital structure of a company in the pharmaceuticals & chemicals industry of Bangladesh. Most of the variable’s signs matched the initial assumptions. The capital structure of the pharmaceuticals and chemicals business in Bangladesh can be described using agency cost theory and static trade-off theory, according to this empirical study.

Suggested Citation

  • 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.
    • Handle: RePEc:aif:journl:v:13:y:2022:i:1:p:122-130
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    References listed on IDEAS

    as
    1. 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.
    2. Toy, Norman & Stonehill, Arthur & Remmers, Lee & Wright, Richard & Beekhuisen, Theo, 1974. "A Comparative International Study of Growth, Profitability, and Risk as Determinants of Corporate Debt Ratios in the Manufacturing Sector," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 9(5), pages 875-886, November.
    3. Hindley, Brian, 1970. "Separation of Ownership and Control in the Modern Corporation," Journal of Law and Economics, University of Chicago Press, vol. 13(1), pages 185-221, April.
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