Impact of Capital Structure on Firms Performance-A Study on Non Banking Financial Institutions and Insurance Companies in Dhaka Stock Exchange (DSE)

Abstract

This paper intends to analyse the impact of capital structure on DSE listed Non-Banking Financial Institution and Insurance company’s performance. This study uses the secondary data collected from the annual reports over the five years from 2015 to 2019 of 20 samples Non Banking Financial Institutions and Insurance companies in the Dhaka Stock Exchange. This study employed four performance indicators as dependent variables: earnings per share (EPS), return on equity (ROE), return on asset (ROA), and net profit after tax (NPAT), and three capital structure ratios as independent variables: total debt to total assets ratios, leverage ratio, and long-term asset ratio. The fixed asset rate and the firm's size are considered as control variables. The findings of the study show both positive and negative effects of capital structure on firm’s performance. Regardless of the direction of links and implications, capital structure indicators have been proven to have a significant impact on firm’s performance in Bangladesh. Instead, the impacts and relationships are weaker in ROE, higher on EPS, ROA and NPAT. These finding suggest that further research should be done to determine more accurate impacts and linkages. Studies should also be done to determine how the influence of capital structure might be amplified to enhance the performance of DSE listed Non-Banking Financial Institution and Insurance Companies. Further studies can be conducted with combining more industry data from extended time period to arrive at a more realistic scenario in future.