International Journal of

Business & Management Studies

ISSN 2694-1430 (Print), ISSN 2694-1449 (Online)
DOI: 10.56734/ijbms
The Determinants of Capital Structure of Companies in an Emerging Economy: a Critical Review


Capital structure is one of the important corporate finance decisions. Trade off theory suggests the existence of optimal capital structure at which firm value is maximized. But the optimal capital structure varies with a number of firm characteristics and its business environment. Hence, understanding the determinants of capital structure is important. Researchers have identified number of determinants of capital structure, however the relationship of these determinants with capital structure is found to be varied. It is also evident that companies operating in different economies generally have different capital structure. Hence it is worth exploring the determinants of capital structure for companies operating in a particular economy. Bangladesh is an emerging economy characterized by high GDP growth, rapid infrastructural development, evolving banking sector and capital market growth. In this context, a review of the determinants of capital structure of Bangladeshi companies is worth exploring. This research therefore does a systematic review of the literature on the determinants of capital structure of the companies in Bangladesh. The objective is to summarize the findings of the empirical researches, analyze the findings in light of the existing theories of capital structure, and compare the findings with those of other emerging and developed economies. The findings of the study will be of significant use for practitioners in determining and justifying appropriate capital structure of their companies. The analysis done in this paper also proposes modification of the existing capital structure theories as such to add several macro factors into account. Future researchers may use the findings of this paper as the base line to identify the focus of further research.