IMPACT OF CAPITAL STRUCTURE ON PROFITABILITY

Abstract

This report provides information about the impact of capital structure on the financial performance of the firms. For this purpose, 30 listed companies of Dhaka stock exchange under textile industry was selected to represent the industry. This study collected secondary data from the annual report of these companies for 3 years period from 2016 to 2018. This study used total debt to total equity ratio and total debt to total asset ratio as a proxy for capital structure, and return on equity (ROE) as a proxy for the firm's performance. Since ROE is dependent on other than capital structure, the natural logarithm of the asset and age of the companies is also taken to control the dependent variables. This study found there is a weak positive correlation between ROE and debt-equity ratio and debt ratio from Pearson’s correlation. Similarly, from the multiple regression analysis, this study found that ROE is sensitive to the capital structure variables.