Does Corporate Governance Influence Leverage Structure in Bangladesh?

Abstract

This paper examines the regulation of corporate governance on leverage structure decision-making in Bangladesh from 2003 to 2017. Appropriate panel methods are employed to control the problems of serial correlation, heteroskedasticity, and the cross-sectional nature of manufacturing companies. The study finds that corporate governance attributes such as board size, managerial ownership, and duality are the dominant factors for leverage decision-making. The results also indicate that control variables such as firm size and profitability have an influential role on leverage decision-making in Bangladesh. Our findings substantiate the idea that political and family connections to corporate governance structure greatly influence the leverage decision-making of corporate firms in Bangladesh. Int. J. Financial Stud. 2019, 7, 50 2 of 16 weak corporate governance, such as family issues, institutional issues, political affiliation, corruption, and the lack of a sense of responsibility and accountability. In this circumstance, financial managers cannot freely make optimal financial decisions in terms of firm value and sustainability. Weak financial decision-making incurs a great deal of loss, which threatens sustainability. The previous studies also consider only primary data, and, to the best of our knowledge, they did not consider the main corporate governance attributes of board size, board composition, board independence, managerial ownership, institutional shares, and CEO duality from secondary data. Hence, the relationship between corporate governance and leverage structure decision-making in Bangladesh has not been fully explored. In this respect, in Bangladesh, there is an urgent need to determine whether corporate governance has any impact on leverage structure decision-making or not.We have investigated the manufacturing sector for several reasons: First, past literature has been primarily dedicated to the analysis of developed countries and there are very few studies focused on developing countries such as Bangladesh. Second, Bangladesh has been experiencing embezzlement in capital markets resulting from political weaponry and government intervention. These consequences radically affect the financial decision-making of manufacturing companies in Bangladesh. Third, the manufacturing sector provides the basic needs of people and fuels economic growth in Bangladesh, and it is highly vulnerable due to a lack of high-quality corporate governance. Poor accounting and auditing standards, bad accountability, low transparency, managerial inefficiency, and political turmoil (Pontines and Siregar 2008) have led to the poor sustainable development of the sector.The major contributions of the paper are designed to add new insights to the current literature: (i) The previous literature on this subject in Bangladesh is few and partial. To the best of our knowledge, research in this area was initiated by Haque et al. 2011 on the qualitative factors of corporate governance in Bangladesh. The most influential variables for c...

Leverage structure decisions in Bangladesh: managers and investors’ view

“…Corporate governance had seriously declined for more than one decade with the collapse of the financial market under the prejudicial roles of regulatory bodies, and government. Apart from the role of regulatory bodies, the corporate firms are operated by a few families or persons, who are being helped by political governments (Uddin et al, 2019;Rahman, and Rana, 2018;Rashid, and Johara, 2018;Habib, 2019). The results of the SEM reveal it alignment with the trade-off and agency cost theories.…”

“…Such evidence was found in developing counties like Bangladesh, where firms were formed by few shareholdings from government backed and some families, resulting to limited access to stock market, because that firms had lost confidence level of investors over the stock market. Recently firms are very hard to raise the funds from stock market because more than one decade, the stock market was collapsed, as there was no corporate governance (Uddin et al, 2019;Rahman, and Rana, 2018;Rashid, and Johara, 2018). Yet, Kumar and Singh (2013) and Lee et al (2008) find a positive and significant association between corporate governance and outside borrowing.…”

“…The decisions of corporate firms are supposed to make them behave differently from developed countries due to the presence of family and political interference in the management and financial market for over a decade. Firms are directed by political and family-affiliated individuals who acquire their license through political considerations (Uddin et al, 2019). Therefore, the concern in this paper is to examine the impact of determinants on leverage structure decisions from Bangladeshi managers and investors' perspectives.…”

The Role of Ownership Structure and Board Characteristics in Stock Market Liquidity

“…Following Muslim and Setiawan (2021), the study uses the proxy for managerial ownership as the part of total shares owned by the managers of the firm. As per the study of Uddin et al (2019), total board members are taken as a proxy for board size and board independence. The study follows Mehmood et al (2019) to calculate CEO duality as value 1 if the CEO is also chairman of the board, otherwise 0.…”

mHealth in Bangladesh: Current Status and Future Development

“…There are no strong laws to protect against cyber-crime and laws for electronic authentication. 72 In 2002, Bangladesh adopted a National Policy on ICTs which sought, by 2006, to develop a country-wide ICT infrastructure. 73 Collectively, these developments have generated a lot of optimism about the potential of Bangladesh's telecommunication sector for addressing a range of development issues, including health.…”