Impact of Capital Structure on Financial Performance and Risk of Publicly Listed Manufacturing Firms in Bangladesh

Abstract

Abstract: The paper examines the impact of capital structure on financial performance and risk for the listed manufacturing companies in Bangladesh. The study considers the relationships of capital structure with different measures of performance based on accounting, hybrid, and risk factors by applying six multivariate Ordinary Least Squares regression models based on data extracted from 120 firms listed on the Dhaka Stock Exchange for the period from 2017 to 2023. The results indicate that Earnings per Share are significantly driven by the Debt to Market Value of Equity ratio and market capitalization, mostly emphasizing the role of market valuation metrics. In addition, Return on Equity is highly influenced by total assets and market capitalization, further stressing the impact of firm size and valuation. In addition, Return on Assets is influenced by these factors as well, with larger firms usually showing a lower ROA. Finally, Tobin's Q is influenced by multiple financial ratios, reflecting the importance of such metrics. Overall, the study thus offers valuable insight into how capital structure affects firm performance and risk in the Bangladeshi manufacturing sector, whereby this information would be of great help to investors and policy makers.