Effect of Financial Structure on Firm’s Value: Evidence from the Cement Manufacturing Firms of Bangladesh

The present study analyzes the effect of financial structure on the value of the Dhaka Stock Exchange (DSE) listed cement manufacturing firms in Bangladesh. The study uses panel data collected from the audited financial statements over the fifteen years from 2006 to 2020 of five sample firms. Through the use of panel data econometric estimation model namely pooled OLS, fixed effects, and random effects model, the results revealed that most of the components of the financial structure have substantial effects on the firm’s value indicators—the price-to-book value (PBV), and Tobin’s Q. The found results illustrate that the short-term financing indicators—the quick ratio (QR) has a positive and significant relationship, while the cash conversion cycle (CCC) has a significant negative association with the firm’s value. Among the long-term financing indicators, the long-term debt ratio (LTDR), and the interest coverage ratio (ICR) have a significant negative impact while the retained earnings ratio (RER) has a significant positive influence on the firm’s value. The firm-specific characteristics—that have been employed as the control variables in this study—also have significant impacts on the value of the firm. The results show that the company size has a significant positive impact, but firm age has a negative significant impact on the firm value. It is suggested that managers should try to reduce the length of the CCC and the use of long-term debt capital in the capital structure; while they should capitalize on the business experience to increase the firm’s value.