The Impact of Capital Structure on Stock Return of Selected Firms in the Pharmaceutical and Chemical Sector in Bangladesh

Abstract

The purpose of this study is to investigate whether there is any statistically significant relationship between capital structure and stock return for the selected firms of pharmaceutical and chemical sector which are listed in Dhaka Stock Exchange of Bangladesh. To examine the relationship this study selects twenty one firms of pharmaceutical and chemical sector. The data collected for the time period from 2010 to 2018. This study considers Hausman specification test to select the appropriate model in order to analyze the balanced panel data. According to the results of Hausman specification test the fixed effect model becomes appropriate in order to determine the relationship between capital structure and stock return. This study considers debt to equity ratio as independent variable and stock return as dependent variable. The control variables are the return on equity, earnings per share, firm size, times interest earned and price-to earnings ratio. The result of this study suggests that debt to equity ratio has statistically significant negative relationship with stock return. Furthermore, from the control variables return on equity, earnings per share and firm size has statistically significant positive relationship with stock return. But times interest earned and price-to-earnings ratio has no statistically significant relationship with stock return.