Ict Industry in Bangladesh
Journal of Business Research, vol. 4, 2002
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A Comparison of Capital Structures Among MNCs and Local Companies in Bangladesh
Javed Siddiqui* M. Zillur Rahman** Abstract: Prior studies in capital structure have attempted at establishing relationships between profitability and level of gearing. This study attempts at presenting a comparison of capital structures between MNCs and local blue chip companies enlisted with the DSE. The study concludes that the level of gearing used in MNCs are significantly lower than the level of debt used by their sectoral local counterpart companies, although the MNCs have a higher tangibility ratio. The study also finds that the debt-equity ratio of local companies and MNCs are almost similarly negatively correlated with profitability.
1. Introduction Determination of the optimum capital structure of a firm is always a formidable task. The extent of use of debt in the capital structure is determined by a trade-off between benefits and costs. While the principal attraction of debt is tax benefit, its cost is financial distress and reduced profitability. (Solomon & Pringle, 1977). The study aims at presenting a comparison between the capital structures of listed multinational companies (hereafter, MNCs) and local blue chip companies operating within Bangladesh. It also attempts to determine whether level of gearing varies among industries. The purpose of this paper also includes establishing a correlation between profitability and the level of gearing and comparing such relationship between local firms and MNCs. The creditworthiness of the firms, indicated by the tangibility ratios are also taken into consideration. Information for the study has been collected from annual reports of the sample companies, reports of the Securities and Exchange Commission (SEC) and Dhaka Stock Exchange (DSE). Besides, the web sites of DSE and the sample companies have been visited. The study may
This article is brought to you by www.bdresearch.org
A Comparison of Capital Structures Among MNCs and Local Companies in Bangladesh
Javed Siddiqui* M. Zillur Rahman** Abstract: Prior studies in capital structure have attempted at establishing relationships between profitability and level of gearing. This study attempts at presenting a comparison of capital structures between MNCs and local blue chip companies enlisted with the DSE. The study concludes that the level of gearing used in MNCs are significantly lower than the level of debt used by their sectoral local counterpart companies, although the MNCs have a higher tangibility ratio. The study also finds that the debt-equity ratio of local companies and MNCs are almost similarly negatively correlated with profitability.
1. Introduction Determination of the optimum capital structure of a firm is always a formidable task. The extent of use of debt in the capital structure is determined by a trade-off between benefits and costs. While the principal attraction of debt is tax benefit, its cost is financial distress and reduced profitability. (Solomon & Pringle, 1977). The study aims at presenting a comparison between the capital structures of listed multinational companies (hereafter, MNCs) and local blue chip companies operating within Bangladesh. It also attempts to determine whether level of gearing varies among industries. The purpose of this paper also includes establishing a correlation between profitability and the level of gearing and comparing such relationship between local firms and MNCs. The creditworthiness of the firms, indicated by the tangibility ratios are also taken into consideration. Information for the study has been collected from annual reports of the sample companies, reports of the Securities and Exchange Commission (SEC) and Dhaka Stock Exchange (DSE). Besides, the web sites of DSE and the sample companies have been visited. The study may