Capital Structure, Profitability and Market Structure: Evidence from Textile Industries in Bangladesh.
In corporate finance, the academic contribution of Modigliani and Miller (1958, 1963) about capital structure irrelevance and the tax shield advantage paved the way for the development of alternative theories and a series of empirical research initiatives on capital structure. The alternative theories include the trade-off theory, the pecking order/asymmetric information theory and the agency theory. All these theories have been subjected to extensive empirical testing in the context of developed countries. A few studies report on international comparisons of capital structure determinants and there are some studies that provide evidence on the capital structure determinants from the emerging markets of South-East Asia. The recent focus of corporate finance empirical literature has been to identify some 'stylized ' factors that determine capital structure.
With relatively little evidence available on the interaction between capital structure and product market structure, some researchers have recently started investigating this relationship. Brander and Lewis (1986), Maksimovic (1988), Ravid (1988) and Bolton variously offer a theoretical framework for the linkage between capital structure and market structure.
On a broader front, Harris and Raviv (1991) and Phillips (1995) provide surveys of both the theoretical and empirical research on the relationship between capital structure and market structure. In a recent study, Rathinasamy, Krishnaswamy and Mantripragada (2000) Rathinasamy, Krishnaswamy and Mantripragada (2000) from forty-seven countries. All these studies establish a linear relationship, either positive or negative, between capital structure and market structure. Differing from the linear theory, this paper argues that the relationship between capital structure and market structure is cubic. It also shows that the relation
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