Effect of Financial Leverage on Firm's Market Value Creation in Bangladesh: A Comparison between MNCs and Domestic Firms

Syed Md. Khaled Rahman
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Syed Md. Khaled Rahman: Shahjalal University of Science & Technology, Sylhet, Bangladesh

International Journal of Corporate Finance and Accounting (IJCFA), 2017, vol. 4, issue 2, 41-58

Abstract: This article contends that a firm's performance is affected by various factors and capital structure is one of the factors among them. The basic objective of the research is to analyze and compare the impact of financial leverage on firms' Market to Book Value (MV/BV) and Tobin's Q ratio of DSE-listed MNCs & domestic firms of Bangladesh over a 20-year period (1996-2015). Explained variables are Market to Book Value (MV/BV) and Tobin's Q ratio. Explanatory variables of the interest are indicators of six financial leverage ratios. MV/BV is negatively related with leverage ratios of both types of companies. Domestic companies' MV/BV decreases by 0.016 times for 1% increase of debt ratio while MNCs' MV/BV decreases by 0.048 times for 1% increase of debt-equity ratio and vice-versa. With debt-equity ratio, domestic companies' Tobin's Q is positively related while that of MNCs is negatively related.

Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:igg:jcfa00:v:4:y:2017:i:2:p:41-58

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