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Debt Financing and Firm Performance: Evidence from an Emerging South-Asian Country

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  • Mohammad Mazibar Rahman
  • Umme Khadija Kakuli
  • Shahnaz Parvin
  • Ayrin Sultana

Abstract

This paper aims to empirically investigate the impact of capital structure choice on the firm performance of the firms listed under the Dhaka Stock Exchange of Bangladesh. Multiple regression has been employed in this research to determine the relationship between the capital structure and the firm's financial performance. Three ratios of financial performance, i.e., return on assets, return on equity, and gross margin, have been used as a sample of non-financial Bangladeshi companies, selected from 2010 to 2015. The study records numerous findings. First, the result shows a significant negative influence of long-term debt (LTD) and total debt (TTD) on firm financial performance measured by return on assets (ROA), but no significant relationship is found between short-term debt (STD) and this measure of firm's financial performance. Moreover, the research found that there is no significant effect of short-term debt, long-term debt and total debt on the firm financial performance measured by return on equity (ROE). Finally, the result shows that a significant negative influence of short-term debt and total debt on firm performance measured by GM, but no significant relationship was found between long-term debt and financial performance. In general terms, the results of this study may suggest that capital structure has a negative influence on firms' financial performance in Bangladesh.

Suggested Citation

  • Mohammad Mazibar Rahman & Umme Khadija Kakuli & Shahnaz Parvin & Ayrin Sultana, 2020. "Debt Financing and Firm Performance: Evidence from an Emerging South-Asian Country," Business and Economic Research, Macrothink Institute, vol. 10(1), pages 40-54, March.
    • Handle: RePEc:mth:ber888:v:10:y:2020:i:1:p:40-54
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    References listed on IDEAS

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    Cited by:

    1. Anis Ali & Abdul Rahman Shaik, 2022. "Effect of Debt Financing on Firm Performance: A Study on Energy Sector of Saudi Arabia," International Journal of Energy Economics and Policy, Econjournals, vol. 12(6), pages 10-15, November.

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    More about this item

    Keywords

    Capital structure; Firm performance; Leverage; Accounting; 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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