Does Capital Structure Matter? Performance Insights from the Bangladeshi Pharmaceuticals Sector
Abstract
Purpose: The purpose of this study is to experimentally examine how capital structure affects the performance of the pharmaceutical business in Bangladesh.
Methodology: The study's sample comprised various Bangladeshi pharmaceutical enterprises from 2018 to 2024. It explored how a company's performance might be affected by capital structure factors. Additionally, it investigated the impact of a few firm-specific variables on the performance, including liquidity, total assets, sales revenue, sales growth, and age. Random effect, fixed effect, pooled OLS, and Pearson correlation matrix models have been utilized in the study. For robustness check it employed two step system GMM.
Results: Liquidity and sales growth showed little to no correlation with performance and efficiency. Total asset positively affects performance and efficiency. Given the size's positive impact, it makes sense that increased sales revenue can boost the performance of the company. The age of the company has a significant detrimental effect on profitability but a limited beneficial impact on efficiency. Eventually, the study comes to a conclusion that the capital structure substantially hinders the performance of Bangladesh's pharmaceutical industry according to all of our findings.
Originality: Numerous research studies have investigated the association between company performance and capital structure, but the outcome is not yet conclusive. Prior studies focused only on profitability metrics. The current study also fulfils this gap by uniquely focusing on the efficiency metric (inventory turnover). Furthermore, the present study focused on the Bangladeshi pharmaceutical sector, which is a rapidly growing and also inventory-intensive. Therefore, this study's dual methodology covered a gap in the literature through empirically examining the way capital structure affects the financial health of pharmaceutical firms in Bangladesh.
Keywords: Firm Performance, Capital Structure, Emerging Economy, Profitability, Bangladesh.
DOI: https://doi.org/10.58869/EJABM11(3)/02
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