The Impact of Capital Structure on the Profitability of Publicly Traded Manufacturing Firms in Bangladesh

Abstract

This research explores the impact of capital structure on the profitability of publicly traded manufacturing firms in Bangladesh. In this paper, we applied the fixed effect regression to find out the correlation among independent variables (debt ratio, equity ratio and debt to equity ratio) and dependent variables (return on asset, return on equity and earnings per share). A sample of 50 observations of selected 10 manufacturing companies listed in Dhaka Stock Exchange has been analyzed over the period of 2013 to 2017. This research reveals that the debt ratio and equity ratio have a significant positive impact but debt to equity ratio has a significant negative impact on ROA. This paper also exposes that, equity ratio has a significant positive impact but debt to equity ratio has a significant negative impact on ROE. Finally, debt and equity ratio has a significant negative impact on EPS. Findings of this research will help the listed manufacturing companies to maintain an optimum capital structure which will lead to the maximization of stockholders wealth.