The Determinants of Capital Structure for Selected Bangladeshi Listed Companies

An OLS regression method has been applied to find out determinants of capital structures of Bangladeshi listed companies. The determinants are selected based on two prominent theories of capital structure, static trade-off theory and pecking order theory. Data from 46 companies listed in Dhaka Stock Exchange (DSE) for seven years (1999 – 2005) has been collected from annual reports. Total number of observations was 322. OLS regression for panel data with cross section random effects was run with two equations. Total debt to market value of the company was used as the leverage ratio in one equation and long term debt to market value was used in another equation. The results show that agency costs are negatively affecting the total debt ratios of Bangladeshi companies. Tax rate is having positive impact only for long term debt and non debt tax shields such as depreciations are negatively impacting on total debt ratio. Bankruptcy costs and profitability are irrelevant in determining leverage ratios, while firm size has positive impact in determining both total and long term debt ratios. Collateral value of assets positively influence only total debt ratio whereas number of years in operation does not have very significant impacts on the capital structure determination. Another variable industry characteristic, has been found to be a significant determinant of debt ratios.