Corporate characteristics and leverage: evidence from Bangladesh

Abstract

Purpose – This paper aims to determine the influence of various corporate characteristics such as total assets (TA), total sales (TSE), return on assets (ROA), return on sales (ROS), liquidity and age on leverage of the listed non-financial companies in the Dhaka Stock Exchange (DSE). Design/methodology/approach – A non-probability sampling technique has been used in this study, and the leverage of 106 companies listed in the DSE has been examined for the time period 2011-2015. Multiple regression models are used to estimate the influence of corporate characteristics on leverage and leverage is measured by the debt ratio, that is, total liabilities divided by total assets (TA). Findings – The results obtained from the regression models show that TA, ROA and age are negatively and significantly related to the leverage of companies. Research limitations/implications – Considering only non-financial companies as the sample is a limitation. Hence, the results may not extend across all listed companies in Bangladesh. The study explores only six corporate characteristics variables; other factors influencing the leverage of the firm such as the number of foreign shareholders, ownership structure and auditors’ opinion could be explored in further studies. Originality/value – The finding of this study contributes to the regulators and enforcement agencies such as Institute of Cost and Management Accountants of Bangladesh (ICMAB), Institute of Chartered Accountants of Bangladesh (ICAB), the Securities and Exchange Commission (SEC) and the DSE. It will enable the regulatory agencies to aim at greater compliance with the local and international standards and also enforce penalties for non-compliance.

Keywords

• Profitability
• Liquidity
• Age
• Debt ratio
• DSE
• Size of the firm