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Background of the Study

The question regarding the optimal capital structure of a firm and the determinants of capital structure has been argued upon for many years in the literature of corporate finance. The capital structure of an organization is a distinct relation among the short debts, equity and long debts. The firms can select among many substitute capital structures.

It is of consideration that whether there is a path of segregating the capital of an organization into equity and debt thereby maximizing the value of the firm. This question of importance for the officers concerned with corporate finance. It is seen that the literature on finance has not been very helpful to give out a clear guidance on the best capital structure. With respect to the capital structure theory, the organizations determine a target debt ratio, which is on the basis of the tradeoff among the benefits and the costs of equity and debt. It is of primary importance to understand how the firms are financed for the management and the fund suppliers (Abdullahand and Naser 2015). This is due to the fact that if the financial mix is wrong, then the performance and the existence of the organizations may be affected seriously. Thus, the intention of the study is to examine the relationship among the determinants of the capital structure decision and the leverage of the IT industries in Bangladesh.

In order to accomplish the aim and the objective of this study, the data associated to a documentary analysis, which is essential for this paper that is collected from the financial reports of eight firms for six consecutive years. The financial statements from which the data has been gathered comprises of the income statement and the audited balance sheet. Finally, the paper assesses the results by making use of the secondary data and this will be helpful for the completion of the result (Bodie 2013). There have been limited studies that have been undertaken with respect to the capital structure of IT industries and it has been observed that vital studies requires to be undertaken so that significant results can be accomplished.

At the present position the information technology of Bangladesh is a subject of extensive interest. It is seen there are around 100 software houses in the country and with the development of the IT sector in the country, there have been various other companies who are coming up in this sector. The government has therefore, announced IT sector to be a thrust sector and thus various computer centers are being developed so that the population of the country can learn the use of computers and can be employed in the IT industries.

Research Questions

The development of the IT industry has led to the enhancement of the capital structure of the organizations. Zeitunand and Tian (2014) has employed a triangulation process to examine the association among the performance of the organization and the capital structure of IT industries in Bangladesh. The paper will try to analyze and establish a strong curvilinear association among the Return on Asset and ratio of debt to equity, which is even known as leverage. The precious researches has examined that the lager organizations are more inclined to preserve the increased performance than the middle level firms under the same degree of debt ratio.

Lileikien?, Puleikien?. and Bujanauskien? (2014) has tried to examine the effect of capital structure on the performance of the organization on the Bangladeshi organizations that have been listed in the Dhaka Stock Exchange during the past six years. It has been observed that the precious researches has mostly utilized four performance measures that comprises of Earnings of Share, Return on Equity, Return on Asset and Tobin’s Q that have been considered as dependent variables and three ratios of capital structure like the TDTA, LTDTA and STDTA ratios that have been taken as independent variables.

DeAngeloand Stulz(2015) examined the effect of capital structure and ownership structure on the financial performance of the firms with respect to the emerging provisional economy. With respect to the findings of the research, it has been observed that capital structure has a negative impact on the statistical importance on the financial performance that is computed with the return on asset and return on equity. The increased degree of the ownership of the state within the ownership structure has an improved financial performance that it possesses. The indication is stable with respect to the theories that are tax based of the optimal capital structure and it is seen that a positive debt level information impact and the leverage persuaded transfer of wealth across the classes of the security.

Vijayalakshmi(2016) have discovered that the inspiration of the structure of debt to equity on the share values have various sizes, opportunities for growth with the organizations that have been incorporated in the Dhaka Stock Exchange of Bangladesh. An increased optimistically correlated relations is prominent from the fundamentals results when the industry stratifies it. Graham, Learyand Roberts(2015) examined the non-financial organizations that were listed on the stock exchange and undertook the growth, profitability, tangibility and size as their determinants. They discovered the positive effect of size and tangibility and the negative effects of growth and profitability. It has been observed that the capital structure of the IT sector industries have a huge scope for development as the it is a rising sector in Bangladesh and therefore it is seen that extensive analysis can be undertaken to bring out the appropriate results.

Aims and Objectives of the Study

The research questions that have been framed are in respect to the research topic that will be influential for the completion of the paper. The research requires to be completed in compliance to the research questions as this would bring out the accurate results. The research question is given below:

Q1. What are the determinants of capital structure and how significantly do they impact on the IT sector of Bangladesh?

Q2. What is the effect of the size of an organization on the capital structure of the IT industries in Bangladesh?

It is essential for the researcher to understand the objectives of the study effectively so that the objectives of the research paper can be considered as the source that will be followed for the completion of the research paper. The objectives of the paper are discussed as follows:

  • To explore the impact of the profitability of the organization on the value of the company who are functioning in the Information Technology in Bangladesh
  • To inspect the impact of the tangibility of the company on the value of the information Technology sector firms in Bangladesh
  • To scrutinize the effect on the magnitude of the company on their value over the IT industry firms in Bangladesh
  • To evaluate the effect of the company’s liquidity on the firm value in the IT sector in Bangladesh
  • To inspect the control of the firm over the value of the firm operating in the information technology industry in Bangladesh
  • To survey which variable has the toughestinfluence on the value of the firm in the IT sector in Bangladesh.

It has been observed that every research topic has its own significance and therefore, it becomes essential for the researcher to undertake the research that would lead to precise completion of the research paper. The significance of this research is given below:

  • It aids the Bangladeshi organizations to select the optimal capital structure in order to enhance their financial performance
  • It helps the management of the IT sector firms regarding how to select a capital structure that has an impact on the financial performance of the IT firms in Bangladesh.
  • Assists the Bangladeshi investors to establish a portfolio that would give them maximum number of profits.

Bangladesh has the idea of attaining their developmental goals with the help of the influential economic principal aspects of the IT industries. Due to the swift transformations in the socio-economic and political conditions of Bangladesh, implementing the most suitable capital structure frameworks can facilitate an increased contribution to the overall business operations within the economy. Therefore, the rationale of undertaking the capital structure policies are discussed below:

  • To ascertain and publish the effective and sound capital structure policy for the IT industry’s by choosing certain selected organizations.
  • To validate the process of how to raise the value of the firm by considering a suitable mix of debt to equity.
  • To disclose how to take benefit out of the auspicious financial leverage.
  • To gain knowledge of how to avoid making use of the increased risky debt capital within the capital structure.
  • To disclose the process of how to take benefit out of the corporate tax.
  • To gain knowledge about the idea about the process of taking advantage of the cost of capital.

In the present time, it is observed that more and more organizations look to implement various sources from debts to equities to finance their activities when they require to increase their size of the organizations or to reinvest in order to increase their profits. Conversely, the conditions are more complicated in the practical competitive world rather than in theory(Allen, Carlettiand Marquez 2015). Capital structure and the impact on the financial performance and the value of the firm is of very much importance. It is observed that a well attributed capital structure will lead to the development of the firm. From the above discussion, the problem statement that can be constructed involves: What is the impact of the capital structure on the financial performance of an organization?

The research gap has been discovered to be one of the most important aspect for the research paper. It is seen that there is a research gap as there has not been prior researches done on this topic that is based on Bangladesh with respect to the IT sector and it is seen that the research topic is even limited too.  It is even seen that the variables like uniqueness and the dividends is even utilized with others with respect to the journals that have been taken into consideration.

Significance of the Research

This section of the paper explains the background of the study along with the aims and objectives that are essential to be discussed in order to course the research in an effective manner. It is even seen that the research questions are even prepared so that the researcher can understand the main aspect that will be explained and precise results can be attained. The statement of the problem along with the knowledge gap with respect to this topic is explained so that the reader can gain knowledge about the aspects that were undiscovered.

There are several variables or factors, which are probable to be utilized as an examination for the value of the firm. Conversely, the elements on the financial statement or the balance sheet of an organization had become the most vital component that requires to be taken into consideration. Tangibility, profitability, growth of the opportunity, size of the firm, leverage and liquidity are discovered to be popular to be reviewed for the investigation of the value of the firm by looking at the previous researches. There have been various researches based on the IT sector firms in various nations but very limited researches have been done with respect to the IT sector industry in Bangladesh.  

Capital structure has been observed as the most noteworthy topic as it has undertaken various researches in both corporate and academic level as the financial decisions of an organization are of crucial importance for its investing and operational activities (Yegonet al. 2014). Thus, it is seen that there are various theories that requires to be discussed in many ways. It is basically referred to as to how the organization mixes the debt and the equity in order to finance it or in other words, it is worried about the combination of the funds, in the practice of debt and equity. Therefore, it is observed that there are variousargumentawith respect to the fact that whether anoptimum capital structure and how the capital arrangement has an effect on the financial performance and thereby their effects in the IT industries in Bangladesh.

In this segment, the idea of capital structure, the characteristics of capital structure and the cost of each component will be discussed. This study will even disclose the concepts of capital structure and the issues that may have an impact on the capital structure of the IT firm that functions in Bangladesh (Sheikh 2015). This unit will even clarify and deliberate the financial performance and their relationship with the capital configuration.

There have been a few endeavors to characterize Capital Structure, all of definitions clarify the sorts of securities and the proportionate sums that cosmetics capitalization. It is the blend of various wellsprings of long haul sources, for example, value shares, inclination shares, debentures, long haul credits and held profit. One of these definitions for Awan and Amin (2014) that express the investigation of capital structure endeavors to clarify the blend of securities and financing sources utilized by organizations to fund genuine venture. The firm needs to make interests keeping in mind the end goal to in any event stay in business, not to mention show some development. To back these ventures, the organizations can utilize inward back sources, for example, held income and issuing shares for open or utilize outside back sources as a credits or bonds.

The term capital structure alludes to the connection between the different long-term sources financing, for example, value capital, inclination share capital and obligation capital as Jõeveer(2013). Capital structure is the perpetual financing of the organization spoke to principally by long haul obligation and value and choosing the reasonable capital structure is the imperative choice of the monetary administration since it is firmly identified with the estimation of the firm. Chang, Chen and Liao(2014) characterized capital structure as the blend of long haul obligation and value kept up by the firm.

Despite the fact that, the genuine levels blend of the association's lasting long haul financing spoken to by obligation, favored stock, and basic stock value may shift to some degree after some time, most firms attempt to keep their financing blend near an objective capital structure. As indicated by Ahsanet al.(2016), the primary reason for the capital structure is to involve the ideal blend of obligation and value. An association's capital structure choice incorporates its decision of an objective capital structure, the normal development of its obligation, and the particular sorts of financing it chooses to use at any specific time. Similarly as with working choices, directors should make capital structure choices that are intended to expand the company's inborn esteem.

From the last definitions, the capital structure can be characterized as the blending of money related sources to back the organizations operations. Money related sources can incorporate the obligation and value that can be utilized by the organizations.

A perfect capital market, as per Faccio and Xu(2015), depends in short frame on the presence of the accompanying five presumptions:

  1. Capital markets are frictionless: No exchange cost or duties. No expenses related to the expenses structure
  2. All market members share homogenous desires: Applicable and homogenous data are accessible to all performers in the market, consequently homogenous desires from the on-screen characters.
  3. All market members are atomistic: No member available can influence the cost of a security through exchanging.
  4. The association's venture program is settled and known: The association's capital speculation program and in this manner its advantages, operations and procedures are settled and known to all financial specialists in the market.
  5. The company's financing is settled: Once it is picked, the capital structure of the firm is settled.

Since the transformation in the capital structure of the firm, suggestions depends on what ostensibly could be considered profoundly inflexible ecological conditions, which particularly is by all accounts far evacuated from the substances of the cutting edge business world as it is normally described by exceptionally unique business conditions, globalization of business sectors and exchange and in this manner quickly changing procedures and plans of action for organizations (Boyd and Macharia 2015).

Amid the decades which have gone since the rise of revenue suggestions in regards to capital structure, an immense measure of research, in to some degree diverse bearings, have included a lot of new information in the talk with respect to structure, which will be surveyed in this section.

This process is even known as the The Total-Value Principle that was established by Merton Miller and Franco Modigliani. It is seen that that this theory has been formed the foundation for modern thinking with respect to the capital structure even though it is not regarded as a pure theoretical outcome as it estimates away many significant features while undertaking capital structure decision. The theory explains that in an accurate market, the financial method of a firm is irrelevant to their value. This outcome is the foundation for the examination of the real world reasoning of why capital structure is pertinent.  It has been observed that the value of an It firm is affected by the capital structure employed by them. The reasons include agency costs, information asymmetry, taxes and bankruptcy costs (Choet al. 2014). This evaluation can be undertaken in order to understand whether the one optimal capital structure is one that maximizes the value of an IT organization.

In their actual condition, M&M theory explains that the association among the financial leverage and the capital costs is described with the help of Net Operating Income process. They make undertake a challenging attack on the conventional position by giving out the behavioral justification for gaining the total rate of capitalizationk0 to remain constant during the entire extent of the probabilities of the financial leverage. It is due to the fact that the value of the total investment of a firm is dependent on their underlying risks and profitability, the value of the firm remaining unchanged with the component of transformations in the capital structure of the IT Firms. Therefore, during the nonexistence of taxes and the imperfections in the market, the total value of an organization does not transform even though how the capital structure is divided into equities, debts and other forms of securities.

The tradeoff theory permits the cost of bankruptcy to move out. It explains that the there is a benefit to financing along with the debt and there is a financial cost with the debt. The benefit that is marginal in nature increases further with the decline in debt and debt while the marginal cost raises so that a company that is optimizing their total value will concentrate on the trade-off when selecting the level of equity and debt that would be used up for financing. Fundamentally, this concept may describe the variances in the D/E ratios among the industries functioning in the IT sector, but it may not describe the differences within the same industry.  

Now, it is seen that if the capital structure is not precise in a perfect market, then the imperfections that are non-existent in the current world must the reason of their preciseness. The theories that have been discussed below will try to explain the imperfections by loosening the estimations undertaken in the M&M model.

Net Operating Income Approach with respect to the capital structure is a philosophy within which the weighted average cost of capital WACC and the overall value of the firm remains stable as the financial leverage is transformed. With the help of this process, the net operating income is discounted at the rate of the overall capitalization to gain the total market value of the firm (Choudhuryand Ashraf 2016). The market value of the debt is then subtracted from the overall market value of the firm to gain the common stock market value. The complex forecast with this method is the total rate of capitalization k0 as well as the cost of debt funds ki remains the same irrespective of the financial leverage that has been implemented. It is seen that as the company raises the use of the financial leverage, it becomes more threatening. Moreover, as long as ki remains stable, the required return rate on the equity is a stable linear function of the debt-to-equity ratio. Due to the cost of capital of the organization, k0 may not be changed with the help of the financial leverage; the NOI method implies that there is no optimum capital structure.

Traditional method with respect to the capital structure estimates that there is an existence of a capital structure and where the administration can raise the overall value of the company through the sensible utilization of the financial leverage. This process advices that the company can primarily decrease the cost of capital and increase their total value with the help of rising leverage. Even though the investors increase the required rate of return on equity, the rise in capitalization rate does not completely offset the benefit of making use of the cheat funds and as an outcome the WACC falls with moderate utilization of the financial leverageCohn, J.B., (Millsand Towery 2014).  

This theory looks to capture the costs of asymmetric data. It explains that the It firms prioritize their financial sources with respect to the law of the lowest effort or even the least assistance, looking to increase the equity as the financial means as the last resort. Therefore, internal debt is utilized first when that is depleted and then the debt is issued and when it is seen that no longer sensible to bring forth any more debt and the issued equities. This theory preserves that the It firms obeys to a hierarchy of the financing sources and look for internal financing when it is available and the debt is preferred over equity if the external financing is essential. Therefore, the style of debt an IT firm selects can perform as a signal of their requirement towards external finance. DeAngeloand Stulz(2013) was the person who popularized pecking order theory when he debates that equity is preferred a lower means to increase the capital as when the managers issue new equities, the investors has the idea that the managers think that he organization is overvalued and the managers are taking benefit of the over-valuation. Thus, the investors will place a decreased value to the new equity issuance.  

The return on asset has been granted broadly as a measure of finance for the firms and the corporate value. It is a measurement of the effectiveness of the management in exploiting all the assets that falls under their control irrespective of financing source.

DeAngeloand Stulz(2015) examined on the IT investments by making use of the panel set of various banks in Bangladesh for a time period of six years. The papers looks to indicate the impacts of the investments in IT sector on the performance of the firms, profitability by utilizing a Balanced Scorecard model in the IT industry. It was examined that the IT investments does not raise the return on asset (ROA). In disparity, as the expenses of the IT industry gets raised, it decreases the return on assets. Conversely, it has been explained that it was due to the rise in the expenditures, which raises in assets and decreasing the operating profit at the same time, thus leading to the fall in the ROA, which has an impact on the performance of the banks in Bangladesh. Additionally, the researcher described that as the extension of the branches and increasing competition in the industry, the ROA is comparatively low. Thus, it was concluded that the impacts of the investments in the IT sector in Bangladesh on the increasing ROA for higher It industries are more than the lower IT firms.

It has been observed that the agency costs estimate the higher leverage is estimated to decrease the cost of agency, decrease the ineffectiveness and thus leading to the development of the performance of the firm. In the studies of the Dhaka Stock Exchange, Ebrahimet al.(2014) make use of the ROA as a substitution for the measures of performance. The examination consists of a dataset of the IT firms. Conversely, the end results indicate that capital structure of the firm have a negative effect on their financial performance. As it is constant with the hypothesis of agency costs, it can be described that the firm looks to over leverage themselves due to the conflicts among the stakeholders of the firm, which has a negative financial performance. Thus, the capital structure of the IT firms is a significant factor of the value of the firm.   

Return on Equity (ROE)

Leaving behind, ROA, there are various other measures of literature utilized on the return on equity as a measure of accounting for the performance of the firm. A survey was undertaken by Elsasand Florysiak(2015) with respect to the six IT firms. The paper investigated the relationship among the bank relationship and the performance of the IT firms. The several number of bank relationship raises as the performance of the firm fell especially in the lower firms. This is due to the fact that scarcer relationship of the banks in Bangladesh reduce the agency problems, asymmetries information and problems of out-weigh hold up. The researchers even discovered that as a number of relationship raises, it even raises the expenses of the interest over the assets, which reveals more borrowing or the increased interest rate experienced. It has been observed that ROE is a fundamental aspect of the capital structure in the IT firms in Bangladesh as the stakeholders associated with the IT firms are ready to invest in IT firms and thereby increasing the level of investments in the banks.

Leaving behind ROA, there are substitute means for the performance of the firm like the Tobin’s Q test. The ratio reveals that all the IT firms that are in the stock market requires to be approximately equivalent to their cost of replacement. The ratio is computed as the market value of a company is divided by the value of the assets. It is observed that when the Q ratio value is among zero to one it means that the costs associated to replace the assets of the firms are higher than the market value. Conversely, Choet al.(2014) said that when the Tobin’s Q ratio is higher than the one, then it reveals that the firm has a higher potential for growth, increased market value and leads to an improved performance of the firm.

Feld, Heckemeyerand Overesch(2013), on the other hand, explained that the Q ratio is dependent on the equity book value of a company and the market value of the stock of the firm. Conversely, it is suggested to raise the level of investment. Tobin’s Q ratio requires to have an increased value. In order to compute the Q ratio, it is crucial to implement a variable known as the market value of the debt. Tobin’s Q is not exploited in this paper as the debt market value is not provided by the firms that have been selected. Moreover, certain researchers discovered Q ratio is a measure for good performance.      

The greater part of the things on the right-hand side of the company’s accounting report, barring current liabilities, is wellsprings of capital. Add up to capital breakdown into two parts, equity capital and debt capital.

In the aspects of capital structure, the equity share capital symbolizes the capital ownership of the economy. It is the permanent capital and can’t be withdrawn during the life span of the organization. The management or the owners are the actual bearer of risk and in return enjoy the profit earned by the firm. Their liability is limited to their amount of contributed capital (Acedo?Ramírez and Ruiz?Cabestre 2014).

Value shares are prominent among the contributing class. With value financing by means of basic stock, you can diminish or increment your proprietorship rate in your organization through the deal or buy of normal stock to/from at least one people or elements in return for a predetermined measure of money. The normal value speaks to the sum that every basic investor have put resources into an organization. Above all, this incorporates the estimation of the basic offers themselves. Be that as it may, it likewise incorporates held profit and extra paid-in capital. As per Hossain and Hossain(2015), capital comprises of two sorts: (1) Contributed capital, which is the cash that was initially put resources into the business in return for offers of stock or proprietorship and (2) Retained Earnings, which speak to benefits from past years that have been stayed with by the and used to reinforce the monetary record or store development, acquisitions, or extension.

In the event that a firm doesn't utilize obligation financing, it's alluded to as an unlevered firm. At the end of the day, it is the hazard innate in the association's operations, which emerges from vulnerability about future working benefits and capital prerequisites. In the event that a firm doesn't utilize obligation then its arrival on contributed capital might be measured by return on value. This just implies the business danger of a use free firm will be measured by the standard deviation of its ROE.

The obligation capital in an organization's capital structure alludes to obtained cash that is grinding away in the business. The most secure sort is by and large thought to be long haul obligation since the organization has years, if not decades, to think of the chief, while paying interest just meanwhile as per Öztekin(2015). In segments of capital structure, debenture capital is a piece of obtained capital; the banks of the organization are the debenture holders. Distinctive sorts of debentures are issued for the accommodation of financial specialists. Likewise, associations can acquire long haul and medium term advances from banks and money related organizations. Open Stores can be utilized as obligation fund; open store implies any cash gotten by a non-keeping money organization by method for store or credit from the general population, including workers, clients also, investors of the organization other than as offers and debentures. When an organization thinks of using the debt financing for their activities they face a financial hazard and it's alluded to as a levered firm. Mateev, Poutziouris and Ivanov(2013) characterized monetary hazard as the extra hazard set on the normal investors as an after effect of the choice to fund with obligation. Money related hazard is the likelihood that the profit of the firm won't be as anticipated due to the strategy for financing.

Additionally, the money related hazard emerges on the grounds that obligation has a settled financing commitment for the most part in the type of intrigue which must be met when the commitment falls due before the investors can partake in the held income. The level of obligation (money related use) that is worthy for one industry or line of business can be very unsafe in another, since various ventures and lines of business have distinctive working attributes.

Leverage is suitably a variable that is exploited to be examined under the value of the firm. Conversely, the association of the leverage and the value of the company is unclear as the association can be related positively or negatively. The decision with respect to the cost of capital or leverage has mainly been to accomplish the goal for the profit maximization and the market value maximization.

As clarified above, capital comprises from two segments, one is obligation and other is value. On the off chance that a firm funds its operation with obligation, it is obtaining cash from a loan specialist for a specific timeframe with a guarantee to pay the cash back with its intrigue. Consequently the bank gets premium installments on the credit. With value financing the investors purchase partakes in the organization, they move toward becoming proprietors and in return they get a segment of the company's benefit (Fauzi, Basyith and Idris 2013). Cost of capital when all is said in done speaks to the distinctive costs appended to the diverse wellsprings of financing gotten by an association.

Gainfulness has dependably been utilized as one of the autonomous factors in the determinants of capital structure in influencing the firm esteem and affirms that benefit and capital structure is connected.

The connection between the benefit and use is uncertain (Elsas, Flannery and Garfinkel 2013). Mazumder(2015) incorporate two speculations which are pecking request hypothesis and static exchange off hypothesis to clarify the relationship for his situation of Bangladesh. As indicated by the pecking request hypothesis, firm utilize just the outside budgetary after used the held income. As it were, the firm with higher productivity has a tendency to pick the inside wellsprings of financing which give a negative connection amongst use and gainfulness. The consequence of the investigation is predictable with the pecking request hypothesis which proposed the negative connection amongst use and gainfulness. Forte, Barros and Nakamura(2013) contended that value financed is favored than obligations. The recorded firms are more pulled in to the value financing because of the capital picks up in the market. Issuance of offers has turned into the most effortless method for getting the wellsprings of financing. Conversely, the static exchange off hypothesis proposes the beneficial firm would lean toward obligation than different sources because of the assessment shield advantage. Consequently, this hypothesis turns out with positive relationship expected amongst gainfulness and use. In any case, Pham et al. (2014) clarified that the association's esteem is amplified whenever the issuance cost, the equity and the debt is reduced with respect to the cost of external equity and the cost of agency.

In the literature as for a similar investigation, Allen, Nilapornkul and Powell(2013) additionally stretch out his investigations to inspect the distinctions of capital structure choices in little, medium and huge firm as looked at the past examinations that lone concentrate on the huge recorded firms. It was contended that the significance of benefit is affirmed paying little heed to how the firm characterizes as per the capital structure hypothesis. Little, medium and extensive firms utilizes the development coordinating guideline and pecking request on their obligation financing choices while recorded firms favor value financing to long haul obligation financing.

Firm execution has negative association with substantial quality. As indicated by Schepens(2016), there are two purposes for to clarify this negative relationship. In the first place, it was because of firm did not completely use the resource for achieve the most extreme creation which can improve firm everyday business operation productivity. Second, the cost of obtaining on settled resource will turn into the substantial use for the firm. The substance is adversely identified with firm execution had demonstrated when the collateralization of settled resource did not been esteemed well in Bangladesh under the examination of Chadha and Sharma(2015). In any case, Feld, Heckemeyer and Overesch(2013) was discovered that substance is an essential determinant of capital structure. On alternate hands, there are some past observational investigations found that firm an incentive in term of their use is emphatically connected with firm substantial quality.

Firm size is thought to be a critical normal for the capital structure. In this way, firm size has dependably been utilized as one of the autonomous factors in the determinants of capital structure in influencing the firm esteem (Maina. and Ishmail 2014). As indicated by Ahmad, Fidaand Zakaria(2013), the size is decidedly affected on firm execution. This is on the grounds that greater firm ready to create in less expensive budgetary sources while it is hard for little firm to rise stores from advertise less exorbitant. Moreover, extensive organization capable utilized the best administrators for administration as the more noteworthy advantage was offered to them. The creators likewise found that the execution of firm was not impacted when utilizing slacked estimation of the size. Also, enormous firm have the capacity of market power will build the execution of firm.

Wide cross session tests utilized byAntonczyk and Salzmann (2014) in their paper to research what are the conceivable elements that empower to effect the impact of development on the ebb and flow association's fairly estimated worth. From the outcomes, future speculation is not a decent market structure to impact the impact of development. Be that as it may, other variable which is piece of the overall industry, publicizing and Research and development use was intuitive impact with development.

According to Forte, Barrosand Nakamura(2013), there exists a negative relationship among the liquidity of the companies and their debt ratio. It is due to the fact that they believe that the companies having increased liquidity will look to utilize lower debt as the high liquidity can create more income in order to finance their activities and investment operations. In comparison to the low liquidity IT firms, they look to go for debt in investing their operations. Increased debt ratio will result to a poor company performance therefore, it is proven that liquidity is important for the performance of the firm. The result is unpredictable and () observes a crucial negative connection among the performance of the firm and the liquidity by making use of the various measure types on the performance of the samples taken from the IT sector industries in Bangladesh. Fosu(2013) debate that liquidity is a function level to the capital structure in the IT sector in Bangladesh.

The above diagram reveals the factors that are associated with capital structure have an impact on the value or Return On asset of the It firms in Bangladesh. In this paper, the characteristics and the factors that have been taken into consideration are tangibility, profitability, opportunity for growth, cost of capital, liquidity and firm size. It has been observed that these factors are considered as independent variables while the dependent variable in this paper is Return on Asset. These variables were examined and investigated in this research paper. This paper examines the relationship between the independent and the dependent variable. This section has even reviewed articles that are related to the topic of the research paper.

The suggestions provided by the researchers reveal that the capital structure is an integral part of any organization. It is seen that the determinants that have been discussed with respect to the capital structure of IT industry is similar to the capital structure of general industries. The determinants that have been discussed in this paper play a key role in the effective functioning of the capital structure of a firm and therefore, it is pertinent for the management of the organizations to look into it so that effective functioning of the firm is possible. The next chapter comprises of the research methodology that would discuss provide the path that would be undertaken by the researcher to undertake the process of data analysis. 

Mokhova and Zinecker(2014) clarified that the benefits of a compelling exploration can be gotten by setting up an approach that is efficient in nature with the assistance of a sensible stream. Mandand Singh(2014) clarified that an exact research is experiential in nature implying that the paper requires to be identified with at least one parts of the genuine position. It is seen that an exact research can be even be replicable so the final product is explored by changing the paper and in this way making a valuable base to attempt choices.

In this procedure of research methodology, the research onion has a capacity play that is exact in nature so the imaginative systems and instruments can be used with the assistance of effortlessness. The research onion takes help of six variable parts that guides the specialist to fulfill the outcomes that are achieved from the information(Graham, Learyand Roberts 2015). The layers of the onion are related with the research procedure and approach embraced by the research.

As indicated by Farrukhand Asad (2017), look into epistemology or reasoning that is utilized by the researcher is brimming with key conjectures regarding the procedure embraced by the investigator to watch the research issue. The most ideal approach to recognize the research philosophy is by portraying the goals of the examination. It has been watched that the three sorts of research theory contains realism, positivism and interpretivism. Regarding this paper, the specialist has used the procedure of positivism philosophy as it would be persuasive for the researcher to clarify the issue and dissect the information gathered in an exact way.

It is seen this is the most basic event in order to start the examination concerning this paper with a particular ultimate objective to fulfill a desired and bona fide result. In this view, Choudhury and Ashraf (2016) suggested that the research approach assists with perceiving each and every phases that are grasped for finishing distinctive operations of the paper. It is perceived that the research approach includes the deductive and inductive approach and it is of genuine criticalness to pick the proper procedure so right outcome can be proficient. It is watched that deductive approach is utilized as a part of this paper as it would be reasonable for the social occasion of the legitimate results. .

The strategy for developing the exploration configuration helps the researcher in picking up information of coursing the paper in the correct way by concentrating on the objectives of the research paper. There are three sorts of research design, particularly exploratory, descriptive and explanatory style.

Regarding the concerned paper, it has been watched that descriptive design has been used as would help the paper in picking up learning as for the final result that is fundamental in this research. This procedure clarifies the issues and the issues confronted and this research is sought after of a similar so reasonable result can be accomplished from the data that has been gathered (Baghai, Servaes. and Tamayo 2014).

The information that is obtained as the fundamental essential to answer the legitimacy of the examination, and it is watched that the social event of the genuine data has been established on the parts of the investigation and the outcome that are asked. The secondary information is accumulated from the electronic journals and manuals, even from the articles that have been displayed by various researchers and from the annual reports of the various IT sector firms operating in Bangladesh. It is watched that web has even been helping for the procuring of significant data in consent to the determinants of capital structure in the IT sector in Bangladesh. This data will help the researchers for the appraisal of the stream cases of the research issues. This paper has considered the fundamental data concerning the auxiliary data as the outcome gotten from the employees of the IT sector, which has been observed to be of basic criticalness (Robband Robinson 2014).

The primary data are generally collected from the employees and individuals who are present in the selected geographical location. However, in this research paper, as the capital structure of IT sector has been taken into consideration, it is important that the data is analyzed by taking help of the data gathered from the annual report of the IT firms functioning in Bangladesh. Thus primary data has been taken into consideration in this paper.

The requirement for secondary data is extremely constrained and it is seen that this kind of information is gathered with the assistance of web and different websites of the IT industries (Lee 2016). The paper has even used the information that is gained from the researchers who have undertaken similar researches earlier.  

The information that has been gathered has been evaluated with the assistance of a couple of parts of estimations. Bartoloni (2013) cleared up that capable choice of the truthful gadgets is significant for the fulfillment of the correct and strong outcomes. It even assists with keeping up the lucidity and withholding the data that has been gathered. The examination has taken the assistance of the adequate estimations programming along these lines changing the consequence of the individuals into the right rates so that a suspicious trend can be constructed.

It has been observed that there have been various methods that are available to the researchers that can be implemented. It is seen that the research approach, research philosophy, research design that have been used in this paper will be appropriate to bring out the precise result and thus it is seen that the researcher after looking after all the tools have decided to implement these tools. The paper has undertaken secondary data and secondary research method as it would be helpful for the attainment of the precise results with respect to the research paper.  

This section of the paper will evaluate the data that have been collected from the selected IT sector firms operating in Bangladesh. The analysis of the financial statement of the IT firms would be helpful for understanding the actual capital structure framework of these organizations.  It has been observed that currently there are only seven IT sector companies that are listed in the Dhaka Stock Exchange and these are the companies that are internationally acclaimed. There are certain firms who have been listed recently in the Dhaka Stock Exchange and their daily trading activities reveal that the IT sector firms are developing in terms of business as well as profits in the economy of Bangladesh. This paper has considered the annual report and the financial statement of Aamra Technologies, Agni Systems Limited, BDCOM Online Limited, Daffodil Computers Limited, Intech Limited and IT Consultants Limited. This segment of the paper will discuss the performance of each of the six companies individually and this would be influential for the understanding of the performance of the companies individually.  

It has been observed that the financial performance of the firms is dependent on the framework of the capital structure that is followed by each organization and thus it is essential that performance of every company is analyzed in detail in an organized manner.

Aamra Technologies Limited is one of the IT sector firms that operates in Bangladesh and is a pioneering technology organization that has been committed in providing the most innovative, revolutionary and advanced hardware, connectivity solutions and software to the banking sector in the country. The company is even known as a synonym of excellence as they are trusted by the leading foreign and the local banks that operates in Bangladesh. Recently, the firm has been awarded with the title of Microsoft Partner of the year for their committed performance and dedication to invent new and improved tools and mechanisms that would make the technical operations much easier. The company has been empowered with extensive human resources that aids the firm to implement all their strategies and policies in an effective manner. The company had earlier been known as Texas Electronics Limited when the firm was established in the year 2007. In the year 2010, the company incorporated themselves in Bangladesh as a Public Limited Company and in the year 2012 the company listed themselves in the Dhaka Stock Exchange (aamra technologies limited. 2017). It is seen that the company has been providing effective IT services and solutions that are inclusive of various solutions like Outsourcing, core banking software, information system etc.

The company has been effective enough to become one of the main players in the IT sector of Bangladesh and has constructed a business framework that would be influential in evaluating the developing business pattern in the Asia-Pacific region. The company by assessing the effective market pattern has been able to frame a capital structure model that has enhanced their investment as well as their business activities (aamra technologies limited. 2017). The firm therefore has been investing in technologies and capacities that would be influential for the development of continuous growth that is long term in nature and profit that would be based on the value given out to the client.

The annual report of the company reveals the financial statement of the firm and in this paper the financial activities for the past six years of the company would be analyzed. It is seen that the company from the year 2011 has been increasing their revenue in a sustainable rate and the revenue has grown to 1201 in the year 2015. However, in the current year the revenue has fallen significantly due to certain factors. It has been observed that the company has been increasing their net profit but recently in the current year their net profit has fallen significantly from the last year. The fall in the net profit has seen a drastic fall in the Earnings per Share from 1.65 from 2015 to 0.83 in the year 2016. It has been observed that there have been certain factors that have led to the profitable position of the firm in the current year. It is therefore essential that the company undertakes certain changes so that they can take advantage of the IT market in Bangladesh. Changes in the capital structure may lead to improvement in their current financial condition.

Agni Systems Limited has been found to be a pioneer in the ISP of Bangladesh. The company started their business in the year 1995 and has been providing internet services in the country ever since. During the initial stages, the company provided dial up services and in the latter stage provided Fibre to the Premises (FTTP) and even Wireless Broadband services. The organizations transformed in to a Public Limited Company in the year 2003 and in the current period has its trading in Chittagong and Dhaka Stock Exchanges with the symbol of AGNISYSL. The head office of the firm is situated in Dhaka. It has been observed that with the advent of time, the company has been developing new and innovative mechanisms, thereby providing extensive services to their clients. The company provides internet services to the residential as well as the commercial clients thereby attracting the most of the customers available in Bangladesh ( 2017). The firm even provides secured data connectivity as well as voice services with the help of telephone services. This enhances the lifestyle of the consumers. The company even provides web hosting services as well as managed servers that aids the services of various companies that functions in the country. It has been observed that the company even provides web services to the small firms that enhance their business as well. The annual report of the firm has been obtained so that the financial condition of the company for the past six years can be analyzed in an effective manner. It has been observed that with respect to Agni Systems Limited, the company has been improving their financial position from 2011 to 2016 in a stable manner. The revenue of the firm has increased in reliably however; the net profit after tax of the firm has been increasing even though the amount has decreased in the year 2015 and again has increased in 2016. This reveals that in 2015 there has been certain issue that has led to such an incident. The EPS of the company has been highest in the year 2014 with the value being 1.11 and the lowest in the next year coming to 0.66. In 2016, however, the company recovered and increased their EPS to 0.76.

BDCOM Online Limited is a trusted name for Internet Service, web based business Service, IT Infrastructure Development and Industry Standard Software. From the initiation, BDCOM conceived 'Add up to Excellence" as its guideline for managing light, around which rotates its whole range of exercises. With the one of a kind vision, BDCOM is the trailblazer in the esteem driven administration market place and an engineer of high esteem end-to-end ICT arrangements and programming for both National and International market ( 2017).

BDCOM was fused as a private constrained organization on twelfth February 1997, under the Companies Act, 1994, and enrolled with the Registrar of Joint Stock Companies. Along these lines, the Company has changed over into a public limited company in 2001 with a view to glide its offer to the general population.

BDCOM has more usage, devoted specialists and innovative ability than whatever other information correspondence player in the market. BDCOM's money related quality, experienced administration group, solid arrangement portfolio, and differentiated deals base will guarantee that it fortifies its effectively imposing position as the main information correspondence arrangements supplier in the Wireless Communication advertise.

BDCOM is an official licensee of Bangladesh Telecom Regulatory Commission (BTRC) to give across the nation Data Communication Service, IPTSP (IP Telephony Service), System Integration, Managed Service, Internet Service, Consultancy for IT Infrastructure Development. It has acquired ISP permit From BTRC. Till now we have assembled our notoriety on 2.4 GHz and 5.8 GHz broadened go arrangements. We convey Layer 2 and Layer 3 availability, remote administrations for IP VPN Wide Area Network (WAN), Internet get to, and VLANs (Virtual LANs). We give secured WAN correspondence utilizing standard security gadgets, for our clients. BDCOM is constantly centered on the nature of administration and security, the two principle criteria of a WAN association.

The financial statement of the firm for the past six years reveals that there have been significant rise in the revenue of the firm for the past six years. The gross profit as well the net profit after tax of the firm has been rising as well from 2011 to 2016 and this has only been possible due to an effective capital structure of the firm that has led to effective operational activities. The constant rise of the profit has led to the growth of the firm has revealed that the company has been effective in expanding the IT sector in Bangladesh.  

Daffodil Computers was built up in 1990 as a proprietorship of Mr. Md. Sabur Khan, the Director of Dhaka Chamber of Commerce and Industries the previous leader of Bangladesh Computer Society (BCS). In 1998 the Company was joined as a Private Limited Company and named Daffodil Computers Limited (DCL). In 2003 the organization turn into the first Public Listed Company as a Purely IT based Company in Dhaka Stock Exchange (DSE) and in 2006 additionally recorded in Chittagong Stock Exchnage (CSE). DCL has developed as the biggest PC amassing, promoting and offering firms of Bangladesh ( 2017).

In spite of the fact that Daffodil Computers center business was PC Assembling and offering, the Company broadened into PC preparing and programming advancement by opening a PC preparing wing (preparing worked by sister worry) in 1997 and a product improvement wing in 1998. These two wings were in this manner set up as particular substances under the names of Daffodil Institute of Information Technology and Daffodil Software Limited individually.

Under the dynamic administration of Mr. Md. Sabur Khan, the organization opened another wing for web based business and web advancement in May 2000 to benefit from the gigantic open door gave by the vigorous development of online business in Bangladesh. DCL ventured ahead while it presented the first neighborhood mark PC in Bangladesh naming Daffodil PC. Its every one of the parts is OEM and uniquely worked for Daffodil PC. For administration and bolster it likewise offers its extras in the market, which has an appeal for its quality and duty.

Because of its quality administration, Daffodil Computers brags the broadest rundown of clients from all sections of the market. The customer rundown of Daffodil incorporates different Ministries of Bangladesh Government, Multinational Companies, Non-Government Organizations, International Organizations, different outside subsidized activities, conciliatory missions, colleges, other instructive foundations and a great many end clients from varying backgrounds. The client is the point of convergence of Daffodil Computers exercises and it firmly trusts that without consumer loyalty, no association can get by in an undeniably aggressive market.

The financial statement of the last six years reveal that the company as indicated has been increasing their revenue significantly and thus has led to significant rise in the net profit after tax. The company with the help of effective capital structure has been able to increase their sales and revenue and thereby maintaining a god level of market share in the IT industry in Bangladesh. The EPS of the firm has been highest in the current year that is 2016, with a value being 1.56 and the lowest in 2014 with a value of 0.69. This company has revealed that they have a stable growth in the business due to sound management policies and effective capital structure.

Intech Limited (Former Intech Online Limited) has during the time kept on giving complete Digital Service arrangements that incorporate Systems Integration, Information System Outsourcing, VAS, IT Training, Core Banking Software, Omni Channel Banking, Payment Solutions, Switching and Network and Solutions, supply, usage and support. As a noteworthy player in the IT segment of Bangladesh, Intech Limited has built up its plan of action over the time through painstakingly investigating the developing business sector patterns of the Asia-Pacific district. The organization is putting resources into limit and innovation that will prompt economical, long haul development and benefit in light of the esteem offered to customers ( 2017).

Intech Limited is likewise one of the Pioneer ISP (Internet Service Provider) and innovation organization that has been committed towards furnishing the managing an account showcase with the most exceptional and progressive equipment, programming and network answers for near three decades in Bangladesh began business from 2000 with Nationwide ISP License maintaining its business with full responsibility for its excellent administration that is dependably on the ascent inferable from its very capable and enabled HR. Intech Limited is a Public Shareholding Company enrolled with DSE (Dhaka Stock Exchange Limited) and CSE (Chittagong Stock Exchange Limited) ( 2017).

Intech Limited center concentration is to reliably present the most recent items while keeping up exceptional client benefits as it keeps on investigating more up to date skylines to convey fresher and better IT answers for its most esteemed premium resource – its clients.

As Intech Limited develops ably, it guarantees to be the first to engage its client base with notable innovative administrations that are particularly intended to enhance the effectiveness of their business without precedent for the historical backdrop of its industry in Bangladesh. Intech Limited is presently drawn in itself in Agro based Business, Real Estate and Hospitality Management business alongside its current business. The background of the company thereby reveals that like other IT firms that have been discussed earlier, this company even has a growth in their revenue from 2011 to 2016. The gross profit of the firm from 2011 to 2014 has been growing slowly but had made a huge leap in 2015 and 2016. The EPS of the company has been moving around 1.03 to 0.96 and has been lowest in 2011 and highest in 2012 and 2015.

ITC Limited gives to real Banks, Financial Institutions, Government associations and retailers with a propelled foundation for Transaction Processing Services while working one of the biggest Banks driven autonomous ATM organize in Bangladesh.

ITCL is dependably flourishes and improve new thoughts to manufacture a developing electronic exchange handling limit in Bangladesh through further speculation and R&D. By and by the organization gives credit and check card handling administrations, Q-money ATM and POS sharing to more than 26+ Banks in the locale, ATM deals and support, POS deals and support, KIOSK-Deposit machine deals and support, SMS Solution, Biometric Solution, Remittance administration benefits and deals with the most broad shared ATM systems. In addition, ITCL has orchestrated Network offering office to Dutch-Bangla Bank Limited Network and OMNIBUS Network ( 2017).

ITCL, gives add up to end-to-end card arrangement, saving money innovation and data arrangement and additionally answers for card personalization, scratch administration, ATM establishment and upkeep and EFTPOS (Electronic Fund Transfer at Point Of Sales) machine establishment and support and the whole exchange handling. ITCL likewise works with a quickly rising number of ATM terminals deliberately situated the nation over and broad of POS terminals at different Merchant areas and Bank offices to serve the Card exchanges of our customers. ITCL began its operation with exclusive Smart Cards, now reaches out to different International Brands and Proprietary named Credit, Debit, Pre-paid, Remittance cards with Chip based and Mag Stripe.

The company has a seen a vast improvement in 2016 with respect to the revenue from the last few years and it is seen that the net profit after tax has increased significantly as well. It has been seen that even though in 2016 the net profit has been high but the EPS has been 0.93, which has been greater than 2015 but lower than 2014 when the EPS was 1.04. it is seen that every firm in the IT sector has an effective capital structure due to which the companies have been growing along with time.

It is therefore seen that all the companies that have been discussed are functioning effectively and have been able to expand their profit as well as business due to their efficient capital structure. It therefore suggests that determinants of capital structure have an impact on the IT firms in Bangladesh.

This chapter represents the final chapter of the research paper where the conclusion, recommendation and the scope of future work will be discussed. This chapter is important for the completion of the paper as it would lead to the completion of the paper as well as make it easier for the researcher to attain the answer in order to understand whether the determinants of the capital structure in the IT sector in Bangladesh would develop the sector in the country and would thereby improve the economy of the country. The construction of the conclusion with respect to the paper would aid the researcher to construct the recommendation section, which can be utilized by the author and the management of the firm as well in order to improve the financial and operational activities of the firm. The recommendation on the other hand would aid the researcher to create an area where they can state whether future work with respect to this topic can be undertaken thereby adding certain points that were missed out by the author in this research paper.


The research paper could be completed by taking help of the secondary data that was obtained from the annual reports of the IT companies that were selected for the completion of this research. The introduction of the paper comprises of the explanation of the research objectives and the background of the IT market in Bangladesh. It has even been observed that the problem statement has been discussed that aids the researcher to choose the tools and the mechanisms they would be useful for them in order to discover the precise answer relevant to the topic. This explains the fact capital structure and its determinants have a crucial role to play for effective functioning of the IT sector firms in Bangladesh. The paper even discusses about the fact that capital structure and its determinants have transformed over the years and the capital structure of the IT firms have certain uniqueness even though they are similar to the general capital structure. The review of literature discuses about the policies and the factors that comprise of the capital structure of an IT firm and it is seen that the previous explanations are helpful for the researcher to obtain an accurate answer. The analysis of the data that have been collected reveals that capital structure has a pivotal role for the development of the IT firms in Bangladesh and it is the duty of the management of the firm as well as the Government to undertake innovative plans and policies that would motivate the firms to expand and would thereby lead to the development of the IT sector in the country. The end result of the paper show that all the objectives of the research that have been discussed earlier have been met properly and it is seen that capital structure of the six IT companies of Bangladesh has a significant role to play for the expansion and the growth of the IT sector with respect to clientele as well as a profit from the business operations.  

Keeping in mind the end goal to comprehend the capital structure in the IT sector there is a prerequisite of better strategies and techniques that would help the researcher to find a great deal more indisputable and exact answer. It is the fundamental point of the specialist to comprehend the ultimate objective of the exploration and consequently course the research towards fruition of the paper. The analyst ought to attempt different systems to find the determinants of capital structure and to find that whether capital structure is in line money related benchmark of the global IT sector. The researcher so as to discover exact answer should hope to find different better strategies with respect to the goal that would lead to better answers. It has been watched that the operational exercises continue changing and accordingly it is fundamental for the administration to continue dissecting the market so that if there should arise an occurrence of any progressions, they firm can quickly change their style and can stay refreshed in the market with respect to the structure of the market. It is even suggested that the capital structure should be lucid and flexible so that the management as well the employees can understand with ease and can implement changes and understand the level of investment and the profit earned from time to time.

There are a few extensions for future work in accordance to this subject as it is observed that the determinants and the aspects of capital structure changes with time and along these lines with the consistent up degree of the procedure, it is the duty of the researcher and the associations to remain caution and actualize changes that would prompt legitimate capital structure and change in the operations of the firm. It is even observed that time has been a confinement for the analyst concerning this paper and in this manner another exploration on a similar point in any future course of time with a bigger time period will be effective for the disclosure of better answers. 

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