Abstract

This paper mainly studies the influence of capital structure on firm’s performance. This investigation has beenperformed on a sample of 36 Bangladeshi firms listed in Dhaka Stock Exchange during the period 2007–2012.We have used four performance measures; earnings per share (EPS), return on equity (ROE), return of asset(ROA) and Tobin’s Q; as dependent variables and three capital structure ratios; short-term debt, long-term debtand total debt ratios; as independent variables. Using pooling panel data regression method, we found that EPSis significantly positively related to short-term debt while significantly negatively related to long-term debt.There is significant negative relation between ROA and capital structure. On the other hand, there is nostatistically significant relation exists between capital structure and firm’s performance as measured by ROE andTobin’s Q. Nonetheless, aside from the positive relation between EPS and STDTA, we can conclude that capitalstructure has negative impact on firm’s performance which is consistent with the proposition of Pecking OrderTheory.

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