COURSE - BUSINESS RESEARCH METHODS

COURSE ID- BUS485

SECTION- 06
SEMESTER- AUTUMN 2022
SUBMISSION DATE: 5th December 2022

Submitted to -
Dr. Maqbool Kader Quraishi
Assistant Professor
School of Business and Entrepreneurship

Submitted By-

Team Infinity
Name ID
Md. Arshadul Hoque 2021270
Moumita Chakraborty 1821842
Ifshita Zaman Noboni 1811068
Muntaka Ferdous Meem 1920325
Md Mizu Ahamed Bijoy 1920718
 Letter of Transmittal
Date: December 5, 2022
Dr. Maqbool Quraishi
Department of Accounting
School of Business and Entrepreneurship
Independent University, Bangladesh (IUB)
Subject: Submission of report on “The Determinants of Firm Efficiency: Evidence from Private
Banks of Bangladesh.”

Sir,
With due respect and humble submission, we are very fortunate of being your students and
would like to thank you to give us the opportunity to work on report based on “The
Determinants of Firm Efficiency: Evidence from Bangladeshi Private Banks”. We have
provided all required information and hope that our information will provide clear idea of the
whole process.
We humbly request you to accept this report and judge us with some leniency for any kind of
mistake what we have made. We hope that you would be cordial enough to our hard work.
However, if you have any query, we will be more than happy to clear out those queries without
any hesitation.

Yours sincerely,
Group: Infinity

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 Table of Contents
Chapter 1: Introduction .......................................................................................................................... 4
1.1 Background ................................................................................................................................... 4
1.2 Problem Statement ....................................................................................................................... 6
Chapter 2: Literature Review .................................................................................................................. 7
2.1 Efficiency ....................................................................................................................................... 7
2.2 Leverage ........................................................................................................................................ 8
2.3 Relation between Leverage and Firm efficiency ........................................................................... 9
2.4 Profitability.................................................................................................................................. 11
2.5 Relation between Profitability and Firm efficiency .................................................................... 12
2.6 Working Capital........................................................................................................................... 12
2.7 Relation between Working Capital and Firm efficiency ............................................................. 13
2.8 Productivity ................................................................................................................................. 14
2.9 Relation between Productivity and Firm efficiency .................................................................... 15
2.10 Liquidity..................................................................................................................................... 16
Chapter 3: Methodology ....................................................................................................................... 19
3.1 Structure of Research Question: Formal..................................................................................... 19
3.2 Data collection method: Monitoring .......................................................................................... 20
3.3 Period: Cross-Sectional ............................................................................................................... 20
3.4 Scope of Topic and Research depth: Statistical study ................................................................ 20
3.5 Research Question and Hypothesis ............................................................................................ 21
Chapter 4: Data Analysis ....................................................................................................................... 22
4.1 Descriptive Analysis .................................................................................................................... 22
4.2 Correlation Analysis .................................................................................................................... 23
4.3 Regression Analysis ..................................................................................................................... 24
4.5 Testing the hypothesis ................................................................................................................ 25
4.6 Prob (F-statistic) .......................................................................................................................... 26
Chapter 5: Discussion and Conclusion .................................................................................................. 27
5.1 Conclusion ................................................................................................................................... 28
5.2 Future Research .......................................................................................................................... 29
References ............................................................................................................................................ 30

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 Chapter 1: Introduction

1.1 Background
A company's success can be gauged by how well it performs. Each period, the company
releases a set of financial statements that can be used to evaluate its performance (Juliana and
Sulardi, 2003). According to Brigham and Enhardt (2003), a company's financial reports can
be used to get insight into the company's operations and financial standing. For a business
owner or investor, the financial statements provide crucial accounting data. If a company can
guarantee a high rate of return, investors will be eager to put their money into it. The primary
objective of financial statements is profit, as stated by the Financial Accounting Standards
Board (FASB) in Statement of Financial Accounting Concepts No.1 (1978). Therefore, the
information contained within financial statements should be capable of predicting future profit.
Measures of a company's success, such as its profit margin, are based on the amount and timing
of capital transactions with investors and other parties (Takarini and Ekawati, 2003). Due to
the rising trend of the company's predicted earnings per period, the profit forecast is critical to
the company's success in the upcoming time. Reviewing the books allows us an approximation
of the profit potential. Financial statement analysis can be done in two ways: through
interpretation or through the calculation of financial ratios.
According to Meythi (2005), financial ratios can be used as a predictor of the company's profit.
A company's past, present, and expected future outcomes or profits can be evaluated with the
use of financial ratio analysis, which can be used by both business owners and government
agencies (Juliana and Sulardi, 2003). Liquidity ratios, leverage ratios, activity ratios, and
profitability ratios are the broad categories into which financial ratios fall (Riyanto 1995).
Takarini and Ekawati (2003) found that the Working Capital to Total Assets liquidity ratio was
a significant predictor of future profit growth.
Money, financial instruments, financial institutions, rules and regulations, and financial
markets are the five main components of every economy's financial ecosystem. Banks play a
pivotal role in the financial system and are among its most prominent actors (Dhanabhakyam
& Kavitha, 2012). A bank is a mediator in financial transactions, profiting from the interest
rate spread as it transfers money from savers to those in need of loans. Banks play a crucial
role in economic expansion due to the breadth of services they provide (Rashid, 2010).
Furthermore, banks are not only instrumental in the financial markets but also a vital part of
the financial infrastructure (Guisse, 2012). The primary function of a bank is to bring together

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those who have money (such as investors or depositors) and those who need money (such as
borrowers) (such as individuals wanting a loan, or businesses wanting to grow). The majority
of the money in circulation is under the banks' control. Because of their control over the supply
of bank money, they are able to shape the economic structure of any nation and the products it
produces (Brigham & Houston, 2011). According to Kumbirai, & Webb (2010), the failure of
a single bank has repercussions for other banks and even other businesses because of the
interconnectedness of the banking system and the importance of its payment system. If even
one major bank were to fail, it would have a devastating effect on the economy. Likewise, the
recent worldwide recession is a consequence of the collapse of the banking industry. It follows
that the governments of all countries care greatly about the financial health of their own
banking sectors (Searle, 2008). The regulatory body ensures a safe and effective financial
system by facilitating the movement of money and the settlement of transactions. The
regulatory body monitors the financial institutions' operations, evaluates their strengths and
weaknesses, and takes corrective steps as needed (Iqbal, 2012). Bangladesh's banking sector is
rather large compared to the size of the economy, especially when compared to other
economies with a similar degree of development and per capita income (Nguyen, Islam & Ali,
2011). In spite of its modest size, this economy is home to more than fifty separate commercial
banks. While there has been significant progress over the past three decades, the population
served by a single bank branch has decreased from 57,700 in 1972 to 20,162 in 2010. Based
on the data, access to banking services does not pose a major issue for the nation (Nguyen,
Islam & Ali, 2011). Since private commercial banks make up the bulk of the banking sector,
this research seeks to evaluate the efficiency of five selected private sector banks in Bangladesh
by analysing their financial ratios, such as those relating to risk-based capital, credit growth,
credit concentration, non-performing loan position, liquidity gap analysis, liquidity ratio, return
on assets (ROA), return on equity (ROE), net interest margin (NIM), etc. Analysing a
company's financial performance through financial ratios is a useful tool for analysts. Ratio
analysis is merely a retrospective examination of historical financial data, as Yap,
Munuswamy, and Mohamed (2012) point out. Nonetheless, an attempt has been made to learn
whether and to what extent different ratio affects the profitability and productivity of the
selected banks by conducting a correlation analysis, then a regression analysis comparing the
performances of various selected private sector banks, and finally deducing a trend for the
future.

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1.2 Problem Statement
It is possible for a firm's efficiency to be significantly impacted by the effectiveness or
ineffectiveness of its profitability policies. The effectiveness or ineffectiveness of these policies
can have a significant impact on the company's day-to-day operations. When it comes to a firm,
identifying the appropriate drivers to boost the organization's efficiency can be rather tough.
As a result, additional research on efficiency is necessary, notably in the banking industry.
Despite the fact that banking is the largest sector in DSE. In Bangladesh, a small number of
studies have been undertaken on the banking industry’s efficiency and its relationship to the
sector.
As a result, the findings of this study may aid in understanding how various variables affect
firm efficacy within the banking sector, which may be applicable to the entire industry. And
this would aid managers in assessing which rules are more advantageous to their company's
situation and which are not. Additionally, it may assist investors in analysing the efficiency of
the Banking business in light of the independent elements discussed in this study, which may
be useful to them.

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 Chapter 2: Literature Review

2.1 Efficiency
While productivity provides information about a firm's overall productive performance,
efficiency adds a relative dimension, which can be characterized as relative productive
performance. The efficiency of a business is defined as the maximizing of the output to input
ratio in the manufacturing process. In other words, when a corporation is the best, it is efficient.
The Organization for Economic Cooperation and Development (OECD) defines efficiency as
the degree to which a manufacturing process adheres to best practices. As a result, efficiency
is a relative concept when enterprises are compared to best practices. Efficiency is defined
intuitively as the difference between observed and ideal values of input and output in a firm's
manufacturing process (Fried, Lovell, and Schmidt, 2008). The production units that
demonstrate those optimal values are referred to as frontier units. Formally, a frontier
technology can be described as a best-practice technology against which enterprises' efficiency
can be judged (Coelli, 1995). The technical concept of efficiency is derived from the
measurement of production potential and technological factors of production mentioned here.
However, the optimal can also be defined in terms of the producer's behavioural aim, that is,
by comparing the observed and optimum values of cost, revenue, or profit. Efficiency is
economically significant in these comparisons.
Koopmans (1951) defined and characterized technical efficiency as the state of a production
unit in which an increase in any output requires a decrease in at least one other output or an
increase in at least one input, and in which a decrease in any input requires an increase in at
least one other input or a decrease in at least one output. Debreu (1951) and Farrell (1957)
pioneered the concept of technical efficiency, focusing on the maximum possible
equiproportionate decrease in all inputs or maximum possible equiproportionate expansion of
all outputs. As such, they separated between efficiency measurements based on inputs and
outputs. Efficiency is defined in input orientation as one (100 percent efficiency) minus the
largest equiproportionate reduction in inputs required to maintain the initially stipulated output
levels. Within the output orientation, efficiency is defined as one (100 percent efficiency) plus
the maximum equipoportionate increase in outputs while maintaining the initially set input
levels. A score of unity indicates technical efficiency, as no equiproportionate reduction in
input or expansion in output is possible, whereas a value less than or equal to unity (input
orientation) or more than unity (output orientation) indicates inefficiency. Their indicator is a

7
radial measure, as its value is entirely dependent on the distance from the best practice frontier;
it is unit independent. As a result of this quality, it is a very useful indicator. However, it has a
disadvantage in that the production unit that achieves the maximum conceivable contraction or
expansion of inputs or outputs is regarded as technically efficient, even when outputs or inputs
are slack. That is, a production unit that is efficient in the Debreu-Farrell sense may be
technically inefficient according to Koopmans' definition: it may sit on the boundary of
production possibilities but not on its efficient subset (Färe, Grosskopf, and Lovell, 1994).

2.2 Leverage
For firms with a larger leverage ratio, the cost of borrowing working capital is likely to include
a higher risk premium. When working capital is still available, it will be the primary method
of payment. As a result, a heavily indebted corporation has less internal finance and may have
less capital available for daily operations. According to Afza and Nazir (2008), a firm with a
growing debt ratio is expected to devote increased attention to avoiding operations during the
operational cycle. This is compatible with the prior empirical evidence and picking order
hypothesis. Lazaridis and Tryfonidis (2006) examined WCM and corporate performance on
the Athens Stock Exchange from 2001 to 2004 and discovered that companies' leverage is
connected to their profitability. Additional study indicates that when firms expand their
leverage, their working capital connections deteriorate dramatically (Chiou et al., 2006;
Zariyawati et al., 2009; Baos-Caballero et al., 2010; Taleb et al., 2010; Abbadi and Abadi.,
2013).
Leverage has been extensively studied. Agency theory and the concept of leverage are
intertwined; they conceptualize but do not define leverage. Unabated, the studies fail to explain
leverage since it is a phenomenon that is context and sample-dependent, as mentioned in the
article's introductory paragraph. Leverage is a financial term that refers to the extent to which
a business relies on debt to finance its operations (Hillier et al., 2010). Numerous authors have
explored leverage and its determinants, conducting their studies in a variety of countries and
through a variety of approaches. This method has resulted in a variety of outcomes and
repercussions. As Myers (2001) points out, the concept of leverage can be expressed in a
variety of ways. As a result, there is no single, universally applicable explanation for how to
use leverage. Such events and variables are not discussed in Myers' article. Decisions about
leverage are made in a variety of contexts and circumstances. Bancel and Mittoo (2004) and
Brounen et al. (2006) analysed the determinants of leverage in Europe using identical
questionnaires, but with different sample sizes, different European countries, and different
8
types of firms. Each of them used a different theoretical framework to explain their findings,
despite the fact that they both discovered empirical evidence that financial flexibility, as
measured by the timing of debt or equity issuance in relation to interest rates and market value,
is the most important determinant of leverage. Additionally, they discovered that other
variables such as the desired debt ratio and tax benefits had a major effect on leverage.
However, according to Leary and Roberts (2005a), leverage decisions are mostly determined
by the adjustment costs of leverage, rather than the characteristics indicated above. Due to their
constant and variable adjustment costs, they restrict managers from actively rebalancing their
capital structure to an optimal position. De Jong et al. (2008), on the other hand, considered
firm-specific considerations when making leverage decisions and conducted a global survey to
determine the determinants of leverage. According to the authors, these qualities have a
significant impact on the capital structure of businesses. Additionally, there are disparities in
the extent to which firm-specific factors such as growth and profitability influence leverage
decisions between countries. Conclusion: According to the authors, firms are more inclined to
take on debt in nations with a more favourable legislative framework and generally stable and
healthy business climate.

2.3 Relation between Leverage and Firm efficiency

Modigliani and Miller's early theorem (1958) claimed that the financial structure has no effect
on the firm's worth. They established that, in the absence of bankruptcy costs and tax subsidies
on interest payments, the firm's worth is unrelated to its financial structure. However,
subsequent theoretical studies have shown that this theory is incomplete and advanced
arguments in favour of a financial structure's non-neutral effect on business performance.
Agency Theory emphasizes the costs associated with disputes between managers-owners and
debtholders, as well as between managers-owners and external shareholders, and predicts both
a negative and a positive relationship between leverage and efficiency. On the one hand,
Agency Theory states that incurring debt results in agency costs, which lower business value
(Jensen and Meckling, 1976). In this situation, agency costs are incurred because of conflicts
of interest between managers-owners and debtholders, which adversely affect the firm's value.
Jensen and Meckling (1976) identify three significant components of debt agency costs: 1) the
incentives associated with highly leveraged enterprises; 2) the expenses of monitoring and
bonding; and 3) the costs of bankruptcy. With debt issuance, the manager will have a significant
incentive to pursue riskier activities than debtholders prefer, which give extremely high payoffs
when successful but also have a low probability of success. If the investment succeeds, the
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manager retains all profits; but, if the venture fails, the debtholder bears the costs. As a result
of this excessive investment in risky projects, the firm's worth is diminished.
On the other hand, Myers (1977) demonstrated that the presence of debt might erode a firm's
incentives to make future investments that benefit only debtholders and not shareholders.
Again, this will result in a decline in the firm's value. Additionally, costs associated with debt
management, including the establishment of debt provisions, are incurred and passed from
debtholders to managers-owners. Once again, the result is a loss in company value. Finally, the
third component of the agency cost of debt is the bankruptcy cost, which increases in proportion
to the amount of debt. This also results in a decrease in the firm's total value. Increased agency
fees are likely to have a detrimental influence on the firm's efficiency. According to Agency
Theory, highly indebted banking high credit costs, have a tendency to under- or overinvest, and
face a greater risk of liquidation, reducing their efficiency. That is, the theoretical predictions
of Agency Theory show that the link between leverage and efficiency is negative as a result of
the conflicts between managers-owners and debtholders. On the other hand, Agency Theory
makes a case for a positive link between leverage and efficiency, as increased leverage reduces
the agency costs associated with external equity. Agency expenses arise as a result of conflicts
of interest between managers-owners and outside shareholders. According to the argument,
managers try to limit their effort since they have their own goals. However, debt issuance puts
managers under pressure to perform better, as Jensen (1986, p. 324) noted the "benefits of debt
in encouraging managers and their companies to be efficient." As a result, debt motivates
management to act more in the shareholders' best interests. As a result, debt has a beneficial
influence on corporate efficiency in this view.
Thus, Agency Theory presents opposing perspectives on the relationship between leverage and
efficiency. As such, the theory predicts the existence of an optimal level of leverage, where the
agency costs of outside equity and debt are reduced. As a result of this idea, the relationship
between leverage and efficiency may not be linear. However, empirical data does not support
a consistent position on this subject. In Japan, Pushner (1995) discovered a substantial negative
association between leverage and total factor productivity, whereas Majumdar and Chhibber
(1999) discovered a similar relationship between leverage and profitability for Indian
enterprises. Weill (2008) examined the effect of institutional factors on the relationship
between leverage and efficiency and discovered a statistically significant positive relationship
for some countries in the sample (Belgium, France, Germany, and Norway), a positive but not
statistically significant relationship for one country (Portugal), and a negative relationship for
the remaining countries (Italy and Spain). Margaritis and Psillaki (2007), on the other hand,
10
discovered that increased leverage is associated with increased efficiency in a large sample of
New Zealand enterprises. According to research conducted in the banking industries, the
relationship between the use of external funding and efficiency is often unfavourable (Aras,
2006; Kim, 2003). All of these ambiguous findings leave the subject open to academic dispute.

2.4 Profitability
Numerous studies investigated organizations' performance in terms of working capital
management from a variety of perspectives. The following sections discuss what is significant
and beneficial for this research. Afande (2015) examined the relationship between working
capital and profitability for cement companies in Kenya. He discovered that effective working
capital management increases a company's profitability, which explains the negative
correlation between the current ratio and the profitability variable. Muhammad and Haider
evaluated the effect of working capital management on corporate performance in Pakistan's
Karachi Stock Exchange index for non-financial organizations (KSE30) (2011). This analysis
utilized a panel of 21 Kse-30 Index-listed firms from 2001 to 2010. Between the cash
conversion cycle, account collection, and inventory conversion time, the result indicated a
negative correlation with firm performance but a positive correlation with liquidity. The
investigator discovered that managers can increase shareholder value and return on assets by
reducing the quantity of their inventory, cash conversion cycle, and debt claim. Increased
liquidity benefits the company's overall success. In this study, the return on assets was used to
determine the link between profitability and the assets of the independent variable.
Additionally, it demonstrates how effectively management utilizes all of the organization's
assets to maximize profitability. Thus, the greater the return ratio, the more efficiently and
effectively management utilizes its assets. The authors emphasize that the rate of return on total
capital, or simply returns on capital, measures a company's success in profiting from its assets
(Horngren et al., 2012). Hassan et al. (2014) defines the return on asset as follows: Revenue on
assets is critical because it establishes a baseline for determining how efficiently the
organization's average amount invested in assets, whether by investors or creditors, is spent on
financing. A low rate of return on assets implies a poor rate of return on assets. The return on
assets metric measures how profitably an asset employee earns money. Thus, the variable
return on assets is determined in the analysis by the ratio of income before interest and tax to
total asset value, and this component is anticipated to have a negative effect on the currency
conversion cycle.

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2.5 Relation between Profitability and Firm efficiency
Because profitability and efficiency are traditional measures of performance, several authors
(e.g., Aiello and Bonanno 2016; Athanasoglou et al. 2008; Defung et al. 2016; Dietrich and
Wanzenried 2011; Ding et al. 2017; Djalilov and Piesse 2016; Garca-Herrero et al. 2009). The
first group consists of aspects unique to the banking industries; these are variables that are
controlled by their management and hence reflect their various management strategies and
actions, dictating their performance (Djalilov and Piesse 2016; Guru et al. 2002). External
determinants are those that are determined by the economic and regulatory environment of a
country and have nothing to do with how the bank is run (Dietrich and Wanzenried 2011; Ding
et al. 2017; Djalilov and Piesse 2016).

2.6 Working Capital

The word work capital refers to the money needed to maintain day-to-day operations of a
company, such as purchasing commodities, wages, rentals, or other expenses. The working
capital that assesses the effectiveness of the work capital indicates the surplus to current
obligations in terms of current assets. This indicator reflects the ability of the company to meet
its financial short-term obligations (Brealey and Myers, 2002). Include three especially
important accounts, such as stocks (current assets), receivable accounts (current assets), and
accounts due (current liabilities). These accounts are the business segments with the directest
consequences for managers. The operating capital must be positive so that a company can
continue its activities and have adequate money to cover both due short-term debts and
forthcoming operating costs.
Working capital is the gap between current and current assets. It is the most powerful aspect of
the capital structure of a firm and directly affects its operations. Current assets are made up of
three main components: receivable accounts, inventories and cash and equivalents. Inventories
are usually further separated into materials, work-in-progress and finished products.
Working capital management refers to measures designed to manage the working capital levels
of the enterprise and does not thus refer to a specific management model or framework. WCM
deals with short-term finance, as opposed to long-term financial decision-making. E.g., how
much a corporation can claim from its suppliers is working capital management, and how much
credit it can seek from its customers. These types of decisions on short-term funding are vital
for firms' sustainability since they affect liquidity and profitability (Aravindan and
Ramanathan, 2013). However, working capital is also crucial for long-term finance since the
company's ability to receive competitive long-term financing would be affected by an indicator
12
of short-term survivorship and financial health through short-term liquidity. Due to the higher
credit risk, a poorly financed business may be more expensive than a good-financed one
(Penman, 2013). Depending on working capital, in certain circumstances, companies will
confront too much financial constraint even if the condition of working capital is not as
predicted. Companies should take action to properly manage their working capital.
In western countries, research has started earlier, and study results are quite abundant between
working capital management and the profitability of the enterprise. Most studies employed the
empirical analytical technique, employing data from various nations and considering variables
as a proxy for working capital management and the profits of the organization. This strategy
included the examination of correlation and regression analysis. As the investigations used
various study samples and analytical variables, various conclusions were drawn. The studies
are grouped according to study samples and factors indicating work management, corporate
performance indicators and research findings. As for the research sample, in all industries or a
particular industry, the existing research sample might be the complete country. A large number
of research studies have utilised the data of listed firms; current study has also brought small
and medium enterprises to the fore. In early research, the net operating cycle is typically
employed as a variable to study the link between profit and working capital for the working
capital indicators. In inventory days and accounts receivable days the operating cycle.

2.7 Relation between Working Capital and Firm efficiency

Numerous prior research shown that working capital management decisions have an effect on
the firm's efficiency and other variables. However, more basic is the impact that working
capital decisions have on the risk, return, and share price of the business (Van Horne and
Wachowicz, 2008). According to Aktas et al. (2015), efficient working capital management is
critical for businesses, particularly during periods of expanding investment opportunity set.
According to Lind et al. (2012), effective working capital management enables a firm to raise
cash for extra strategic objectives, reduce financial expenses, and boost firm efficiency.
Working capital management, according to Knauer and Wöhrmann (2013), is critical to a
business's success. Additionally, Mousavi and Jari (2012) assert that there is a favourable
correlation between working capital management and a firm's efficiency.
While theories suggest a strong relationship between working capital management in terms of
cash conversion cycle measures and firm efficiency, we can easily see the connection between
the cash cycle of a firm and its profitability by recalling that one of the fundamental
determinants of a firm's profitability and growth is its total asset turnover, defined as sales/total
13
sales." (2008) (Ross, Westerfield, and Jordan). The stronger this ratio, the greater the
accounting return on assets, ROA, and return on equity, ROE, of the business. Thus, assuming
all other variables remain constant, the shorter the cash cycle, the lesser the investment in
inventories and receivables by the firm. As a result, the firm's total assets are reduced, while
its overall revenue is increased (Ross, Westerfield and Jordan, 2008). According to Agha
(2014), a business's profit margins can be increased by effectively managing its working
capital.
Working capital management is commonly regarded as a legitimate strategy for influencing
profitability and other financial variables. According to Vishnani and Shah (2007), working
capital management strategies and practices have a significant impact on a firm's efficiency.
"Many businesses seek to increase efficiency and cash flow by lowering their investment in
current assets through practices such as effective credit underwriting and receivables
collection, as well as just-in-time inventory management. Additionally, businesses strive to
finance a sizable percentage of their current assets via current liabilities, such as accounts
payable and accruals, to reduce working capital. Additionally, working capital management is
responsible for two critical decisions for the business: determining "the optimal amount of
investment in current assets and the ideal mix of short- and long-term financing utilized to
support this investment in current assets" (Van Horne and Wachowicz, 2008). While these
choices are influenced by the trade-off between profitability and risk (Van Horne and
Wachowicz, 2008). Reduce current asset investment while maintaining the ability to support
sales would increase the firm's return on total assets. To the degree that short-term financing
has lower explicit costs than intermediate and long-term financing, the higher the ratio of short-
term debt to total debt, the more profitable the firm. (2008) (Van Horne and Wachowicz).

2.8 Productivity
Numerous academics investigated organizations' success in capital structure management from
a variety of perspectives. The following are many of the most significant and relevant findings
from this study. Afande (2015) explored the relationship between capital structure and
profitability in Kenyan cement enterprises. He discovered that businesses with an effective
capital structure are more successful, which explains why the current ratio has a negative link
with profitability. Muhammad and Haider (2011) examined the impact of capital structure
management on Pakistan's KSE30 index of non-financial enterprises. From 2001 to 2010, this
investigation used a panel of 21 Kse-30 Index-listed enterprises. There was a negative
association between cash conversion cycles, account collection, and inventory conversion
14
periods and the firm's performance, but a positive correlation between cash conversion cycles,
account collection, and inventory conversion periods. By lowering inventories, the cash
conversion cycle, and debt claims, management can boost shareholder value and return on
assets. As a result of the increased liquidity, the company's overall performance increases. In
this study, we will use return on assets to determine the relationship between profitable and
asset returns. Additionally, it displays how effectively management manages the company's
resources to maximize earnings. As a result, the higher the return on investment, the more
efficiently and effectively management utilizes its resources." The writers stated that a
company's ability to profit from its assets can be quantified by its rate of return on total capital
or simply returns on capital (Horngren et al., 2012). Hassan et al. (2014) defined return on asset
as follows: The average amount invested in the organization's assets by investors or creditors,
whether in the form of equity or debt, provides a baseline for adjusting how efficiently finance
is spent on assets. Poor return on assets indicates a low rate of return on investment. The return
on assets is a metric that indicates how well an employee's assets are utilized. The variable
return on assets, which is defined as the ratio of pre-tax income to total assets, will have a
negative effect on a currency conversion cycle.

2.9 Relation between Productivity and Firm efficiency

A business's success is determined by its performance over a specified time period. According
to Vintila and Nenu (2015), an organization's performance is critical in today's economic
climate, which is characterised by rapid change, tough rivalry, and globalisation.
Organizational performance is a complicated phenomenon that affects all stakeholders and is
critical for controlling and implementing long-term objectives. Firm performance measures the
efficiency and effectiveness of an organization's internal and external activities, and it can be
classified as financial or non-financial performance. Farlex (2012) defines it as the actual
output/results produced when compared to the expected outputs (goals and objectives). An
organization's non-financial performance can be measured using the internal control system,
learning and growth, and innovation criteria. The financial performance of a business is
determined by its various financial qualities or financial elements, including profitability,
leverage, liquidity, and turnover. Financial performance is evaluated using these financial
parameters following the requirements of the company's many stakeholders (Pandey, 2015).
Financial performance metrics can be classified into two types: accounting-based metrics and
marketing-based metrics. Accounting-based measurements, such as Return on Assets (ROA)
and Return on Equity (ROE), are frequently regarded as indicators of a firm's short-term
15
success (Nguyen et al. 2019). Profitability is critical when evaluating a corporation's financial
performance because the ultimate goal of the firm is to earn profit. Thus, profitability is a
complete measure for evaluating a business's performance (Banimahd & Mohammadrezaei,
2012). Profitability is a metric used to determine a business's operational efficiency (Pandey,
2015). Different ratios can be used to determine profitability. Prior research (e.g., Fernandes,
2008; Kamath, 2008; Ting & Lean, 2009) has used a variety of well-known performance
proxies, including Tobin's Q, ROA, ROE, Return on Total Assets, Earnings per Share, and
market valuation.

2.10 Liquidity
Liquidity is a ratio used to assess a business's capacity to satisfy short-term obligations.
Because a company with strong liquidity can pay its short-term debt, it tends to reduce total
debt, resulting in a smaller capital structure; hence, liquidity affects the capital structure.
According to the Pecking Order Theory, management prefer to finance first with retained
earnings, then with debt, and ultimately with the sale of new shares. Septiani and Suryana
conducted studies to substantiate this (Septiani and Suryana, 2018). According to signal theory,
a company's capacity to satisfy its short-term obligations will elicit a favourable response from
the stock market, so increasing the company's value; hence, liquidity affects the company's
worth. This is corroborated by study conducted by Yanti & Darmayanti (Yanti and Darmayanti:
2019). As has been established, liquidity is a critical goal of working capital management and
a vital duty of cash management. Numerous authors have defined liquidity differently, but in
general, "a firm is liquid when it can pay invoices on time and without incurring unnecessary
costs" (Maness and Zietlow 2005:25). Liquidity can also relate to the ease with which assets
can be changed into money (Howells & Bain, 2005:587), although for this study, the former
term is used. Solvency and liquidity are two closely related concepts (sometimes used
interchangeably?) that affect how a company's working capital policy is implemented. As
described by Maness and Zietlow, "a business is considered solvent if its assets surpass its
obligations" (Maness and Zietlow 2005:25). Kim et al. 1998 referenced Brealey and Meyers in
asserting that the value of liquidity is one of finance's 10 unsolved problems. Why do
businesses require liquidity, and how much liquidity is sufficient? The costs and advantages of
liquid assets must be carefully balanced against the opportunity costs associated with more
productive but less liquid assets. The optimal level of liquidity is defined by the trade-off
between the poor rate of return on liquid assets and the benefit of avoiding external financing.
Kim, Chang-Soo, David S. Mauer, and Ann E. Sherman, 1998).
16
2.11 Relation between Liquidity and Firm efficiency
Kim et al. (1998) claim that in the presence of optimal capital market circumstances, firms
should not be required to keep extra liquidity, as external financing to cover possible cash
shortfalls should be accessed at any time at a reasonable price (Kim et al. 1998). Kim et al.
(1998) examined the reasons for companies holding excess liquidity and confirmed two
previously mentioned factors: the need for excess cash is typically viewed as a cost-effective
way to reduce the firm's reliance on costly external financing and to capitalise on profitable
future investment opportunities. Again, ideal conditions are rarely maintained in practise, and
corporations like to keep some liquidity as a buffer against unforeseen events. It is extremely
difficult to formulate rules of thumb for optimal liquidity levels, and has said previously, it has
remained one of finance's unresolved concerns. As was previously stated in relation to working
capital requirements, the requirement for liquidity is determined by a variety of factors,
including the industry and financial structure of the business. (Kim et al. 1998) discovered that
firms with lower market-to-book ratios (P/B) have bigger stakes in liquid assets and that firm
size has a negative relationship with liquidity in the United States. Firms with more
unpredictable earnings and lower returns on physical assets compared to liquid assets typically
have much greater liquid asset portfolios.
Zhou (2010) said that Keynesian's Liquidity Theory of Interest is an approach for
understanding how the equilibrium interest rate is determined. Interest rates, according to
Keynes, are the compensation for parting with liquidity. The need for money is basically an
expression of the drive to accumulate wealth. People prefer to possess money due to its utility
in making purchases. According to Keynes, money is held for three reasons: transactional
demand, precautionary demand, and speculative purposes. The term "transactions demand"
refers to the desire for money in order to make purchases, exchange products and services, and
regards money as a means of exchange. On the other hand, precautionary demand for money
refers to the accumulation of funds in anticipation of future uncertainties. For instance, a
business may reserve precautionary funds to cover bills if a business partner's payments are
delayed. Both of the preceding requirements are for active balances. They are determined by
their level of wealth: their real income and the intervals at which they are paid. The more their
real income or profits, the more active balances they will hold. Interest rates have a negligible
effect on them (Zhou, 2010). Money is used as a medium of exchange by speculators to acquire
bonds (government-issued fixed-income instruments) and as a means of wealth storage. It is
affected by future bond price assumptions and is interest elastomeric. The money in this case

17
is referred to as idle or passive balances. When bond prices are high, interest rates are low, a
relationship that is inverse. When interest rates are extremely low, money demand may even
become fully elastic, which is referred to as the liquidity trap. The horizontal sum of these three
functions equals the overall demand for money. Money is thought to be fixed since it is
determined by monetary authorities operating through the banking system. When the liquidity
period (LP) curve crosses the money supply curve, the equilibrium interest rate is calculated,
and its position is stable. When the supply of money exceeds the demand for money,
individuals will use the excess money to purchase bonds. As stated in the law of demand, this
rise in demand will drive the price of bonds up, bringing the interest rate back to its equilibrium
level. Likewise, the converse is true. Where the assumptions are invalid, such as when the
money supply is not stable, this explanation is invalid. Additionally, if changes in the money
supply occur during the liquidity trap, when money demand is completely elastic, the interest
rate will adjust as well (Zhou, 2010).

18
 Chapter 3: Methodology

The study examined ten banks of Bangladesh that are regulated by the Dhaka Stock Exchange
(DSE). The sample was drawn from publicly available papers such as annual, sustainability,
and financial reports that disclosed working capital and financial information on banking
company websites, including full DSE data. The population size was determined using data
from all publicly accessible publications, including annual reports, sustainability reports, and
financial information available on the separate websites, as well as statistics provided by the
DSE. This research gathered data from corporate annual reports, which serve as a proxy for the
economic and financial health of the entire country.
The research can be classed as formal between exploratory and formal studies. The official
study starts with the departure of investigation, begins with hypotheses or research questions,
and includes specifications of data sources and accurate processes. The aim of the formal study
is to test whether the relationship exists and to answer the questions of inquiry. The researcher
monitors the activity of a person or the nature of some material without reacting. Ten banks
are supervised in our research. The researcher tries to regulate and/or modify the variables in
the study in an experiment. However, with an Ex post facto design, researchers do not influence
or manipulate the variables in any way. The main focus of the study is on business banks in
Bangladesh. We are researchers and we have no influence over the variables in this report. And
this essay is a guide to our research. The study is intended to explain why. This is because our
research objective is to learn why and how a variable change in a different variable. In this
study, the relationship between the separate factors (Liquidity, Working Capital, Leverage,
Profitability, and Productivity) is being explored and the impact of the firm efficiency is being
investigated. The yearly report is analysed as longitudinal studies, because our subject matter
is the capital of the banking company in Bangladesh, and its drivers (2015-2021). Due to our
research on data collecting from Private Banks, we select a panel range in longitudinal research.
We will utilize EVIEWS software for the detailed analysis and interpretation of the statistical
study since we measure each independent variable and will do relevant analysis of
relationships. In our examination effort an annual report was used to collect data which is a
prolonged inquiry and changes additional time. Quarantine hypotheses are tried.

3.1 Structure of Research Question: Formal

A formal research study has been employed to finish the study since the goal of the
investigation is to evaluate the hypothesis. Since, we are not generating any hypothesis rather

19
testing one we employed formal research framework. In formal research predictable processes
and ordered stages are employed to perform the investigation. Information is utilized for
improved understanding rather than forming a hypothesis.

3.2 Data collection method: Monitoring

Reports and research have been tracked properly for this report. Variables are discovered and
the link between them is studied to determine how they changes overtime. We have observed
the influence of factors like profitability, non-debt tax shield, corporate tax, liquidity, growth
opportunity. Through monitoring all data was gathered, and relationship was examined.

3.3 Period: Cross-Sectional

Cross sectional study is entirely observational research. We have gathered data from 2015 to
2021 and we will evaluate the data for the stated time range.

3.4 Scope of Topic and Research depth: Statistical study

We evaluated Private Banks of Bangladesh by statistical data. The statistical data acquired for
the research allowed to undertake quantitative analysis for Banking sector of Bangladesh.

Category Selected Options Explanations

Structure of Formal The study conducted a formal study for the research, as
Research Question the objective of the research is not to produce any
hypothesis or query for future study. As the study is not
establishing any hypothesis rather it is utilizing a precise
process to examine the theory.
Data Collection Observation The investigation noted the Private Banks’s yearly
Method reports. In the study, variables and relationships were
analysed to detect how they are processed or modified
through time, as well as how the factors affect the
profitability of banking industries.
Study Purpose Casual In the study, the relationship between dependent and
independent variables will be found by a casual
investigation.
Period of Time Cross- Our research will be conducted within the time span of
Sectional 2015 to 2021. Our goal is to analyse data in our given time
frame.

20
 Scope of Topic Statistical Through statistical study we have analysed selected ten
and study Depth Study Private Banks of Bangladesh. This study also helped us to
research our report which assist in quantitative data
analysis.
Research Simulation All research and material from the secondary source
Environment Study were obtained on the basis of simulation research.
Research Analysis Tools The secondary data will be analysis by using EVIEWS
Instrument software.

3.5 Research Question and Hypothesis

IV= Liquidity
Q: Does Liquidity have a significant relation with Firm Efficiency?
Ho: Liquidity does not have a significant relation with Firm Efficiency.
HA: Liquidity does have a significant relation with Firm Efficiency.

IV= Working Capital

Q: Does Working Capital have a significant relation with Firm Efficiency?
Ho: Working Capital does not have a significant relation with Firm Efficiency.
HA: Working Capital does have a significant relation with Firm Efficiency.

IV= Leverage
Q: Does Leverage have a significant relation with Firm Efficiency?
Ho: Leverage does not have a significant relation with Firm Efficiency.
HA: Leverage does have a significant relation with Firm Efficiency.

IV= Profitability
Q: Does Profitability have a significant relation with Firm Efficiency?
Ho: Profitability does not have a significant relation with Firm Efficiency.
HA: Profitability does have a significant relation with Firm Efficiency.

IV= Productivity
Q: Does Productivity have a significant relation with Firm Efficiency?
Ho: Productivity does not have a significant relation with Firm Efficiency.
HA: Productivity does have a significant relation with Firm Efficiency.

21
 Chapter 4: Data Analysis
This study analysed Private Banks in Bangladesh using the Dhaka Stock Exchange's
classifications. In all, a population size of firms that provided any financial information was
chosen, despite the fact that all of these companies are directly supervised by the Dhaka Stock
Exchange (DSE). Data were collected from 2015 to 2021. The percentage of companies that
specified at least one of the respective sustainability metrics is shown in Table 1, along with
the average for each category. The findings indicate that disclosure has increased over time and
that environmental indicators are more frequently highlighted than social and governance risk
indicators.

4.1 Descriptive Analysis

Table 1: Descriptive Analysis of Private Banks 2015 – 2021

WORKING_C
FIRM_EFFICIENCY LEVERAGE LIQUIDITY PRODUCTIVITY PROFITABILITY APITAL
Mean 0.356194 0.438454 3.589602 1.200549 0.055096 7.571504
Median 0.078789 0.494727 1.813225 1.160069 0.056327 8.955405
Maximum 1.234787 0.671125 14.40858 3.189789 0.158357 9.539550
Minimum 0.001802 0.212872 0.838813 0.000145 -0.024346 -7.668199
Std. Dev. 0.443822 0.126877 4.192719 0.850410 0.048110 4.427229
Skewness 0.792596 -0.096206 1.623604 0.178813 0.377410 -3.041287
Kurtosis 1.882631 2.104715 4.008697 2.463479 2.477198 10.41895

Jarque-Bera 3.918069 0.873498 12.04357 0.433073 0.878204 95.87354

Probability 0.140994 0.646133 0.002425 0.805303 0.644615 0.000000

Sum 8.904849 10.96135 89.74005 30.01373 1.377402 189.2876

Sum Sq. Dev. 4.727471 0.386348 421.8934 17.35673 0.055550 470.4085

Observations 70 70 70 70 70 70

Working Capital Management: According to our data, the mean value of Working Capital
Management is 7.58, while the median value is 8.9. Working Capital Management can have a
maximum value of 9.5 and a minimum value of -7.668199. The standard deviation of our data in
Working Capital Management is 4.42.

Liquidity: According to the analysis, the mean value of Liquidity 3.5 and the median value is 1.81.
It indicates that the highest value of Liquidity can be as high as 14.4 and as low as .833. Our data
has a standard deviation of 4.1 Liquidity.

Leverage: The analysis suggests that Leverage has a mean value of .43 and a median value of .49.
For our supplied sample in our analysis, we notice that Leverage can reach a maximum of .67 and
a minimum of .212. The standard deviation of the data is .12.

22
Productivity: Productivity has a mean of 1.20 and a median of 1.16. Productivity can have a
maximum value of 3.18 and a minimum value of .0001. In Productivity, the standard deviation is
.85.
Profitability: Productivity has a mean of .055 and a median of .056. Profitability can reach a
maximum of 3.18 and a minimum of -.02. The size standard deviation .048.

4.2 Correlation Analysis

Table 2: Correlation Analysis between the variables of Private Banks 2015 – 2021.

FIRM_EFFI WORKING_
CIENCY LEVERAGE LIQUIDITY PRODUCTIVITY PROFITABILITY CAPITAL
FIRM_EFFICIEN
CY 1 0.4096317 -0.31189 -0.09983 -0.0344 -0.42470
LEVERAGE 0.40963 1 -0.45036 0.38740 0.13728 -0.430
LIQUIDITY -0.3118 -0.45036 1 -0.20525 0.1542 0.2323
PRODUCTIVITY -0.0998 0.38740 -0.20525 1 0.5061 -0.1400
PROFITABILITY -0.03444 0.13728 0.154279 0.50611 1 -0.574
WORKING_CAPI
TAL -0.4247 -0.430515077 0.2323 -0.1400 -0.5743 1

Correlation analysis is a statistical technique for determining the strength of a relationship

between two numerical variables. A high correlation indicates that two or more variables are
strongly associated, whereas a low correlation indicates that the variables are hardly related.
The dependent variable's association with each of the independent factors is shown in Table 2.
Working Capital Management and Liquidity: Working Capital Management and Liquidity
have a correlation of 0.234, indicating a high positive link between the two. Increased liquidity
results in decreased working capital management. This indicates that the null hypothesis has
been accepted and the alternative hypothesis has been rejected.
Working Capital Management and Leverage: Working Capital Management and Leverage
have a correlation of .431. This demonstrates a high link between the two variables. Leverage
results in a decrease in working capital management. This indicates that the hypothesis has
been accepted.
Working Capital Management and Productivity: Working Capital Management and
Productivity have a correlation of .142, indicating a positive link between the two. Working
Capital Management improves as productivity grows. This indicates that the null hypothesis
has been accepted and the alternative hypothesis has been rejected.
Working Capital Management and Profitability: Working Capital Management and
Profitability have a correlation of -.576, indicating a high negative link between the two.

23
Profitability improves when working capital management improves. This indicates that the null
hypothesis has been accepted and the alternative hypothesis has been rejected.
Working Capital Management and Firm Efficiency: Working capital management and firm
efficiency have a correlation of 0.424, indicating that the positive effect hypothesis is accepted.

4.3 Regression Analysis

Table 3: Regression Analysis of Private Banks 2015 - 2022.
Dependent Variable: Firm Efficiency
Method: Least Squares
Date: 2/20/22 Time: 01:06
Included observations: 70

Variable Coefficient Std. Error t-Statistic Prob.

C 0.369655 0.180081 1.144463 0.3637
Working Capital -1.694579 0.023941 -1.402985 0.1734
Liquidity -2.657394 0.414176 -6.247088 0.0000
Leverage 0.523760 0.000519 1.565925 0.1305
Productivity 0.044698 0.044629 2.057083 0.0507
Profitability 0.037006 0.037006 0.743255 0.4645

R-squared 0.828430 Mean dependent var 0.377559

Adjusted R-squared 0.791853 S.D. dependent var 0.121931
S.E. of regression 0.069847 Akaike info criterion -2.308166
Sum squared resid 0.117086 Schwarz criterion -2.027927
Log likelihood 40.62249 Hannan-Quinn criter. -2.218515
F-statistic 12.87499 Durbin-Watson stat 0.913849
Prob(F-statistic) 0.000004

From the above Table 3 we can rewrite our equation as such:

Y= 𝑪 + 𝜷𝟏𝑿𝟏 + 𝜷𝟐𝑿𝟐 + 𝜷𝟑𝑿𝟑 + 𝜷𝟒𝑿𝟒 + 𝜷𝟓𝑿𝟓 + εi
Firm Efficiency = 0.369 + Working Capital -1.69 + Liquidity -.265+ Leverage .523 +
Productivity 0.044698 + Profitability 0.037006

• If Liquidity increase by 1 unit, Firm Efficiency will decrease by -.265unit.

• If Leverage increase by 1 unit, Firm Efficiency will decrease by .523 unit.
• If Productivity increase by 1 unit, Firm Efficiency will increase by 0.044698 unit.
• If Profitability increase by 1 unit, Firm Efficiency will increase by 0.037006unit.
• If Working Capital increase by 1 unit, Firm Efficiency will increase by -1.69 unit.
• The intercept on the x-axis is 0.206096.

24
Standard Error
The standard error of the regression, alternatively referred to as the standard error of the
estimate, is the average distance between observed values and the regression line.
Conveniently, it indicates how far off the mark the regression model is on average when the
response variable's units are used. Smaller values are preferable since they suggest that the
observations are more closely associated with the fitted line.
• Standard error of Liquidity is 0.414. This is the standard deviation of actual Value of Firm
Efficiency about the estimated value of Firm Efficiency.
• Standard error of Leverage is 0.000519. This is the standard deviation of actual Value of
Firm Efficiency about the estimated value of Firm Efficiency.
• Standard error of Productivity is 0.0446. This is the standard deviation of actual Value of
Firm Efficiency about the estimated value of Firm Efficiency.
• Standard error of Profitability is 0.037006. This is the standard deviation of actual Value
of Firm Efficiency about the estimated value of Firm Efficiency.
• Standard error of Working Capital is 0.0239. This is the standard deviation of actual Value
of Firm Efficiency about the estimated value of Firm Efficiency.

4.4 R-squared
As seen in the preceding Table 3, R-squared is 0.828, which is a statistical measure of how
close the data are to the fitted regression line. Additionally, the term coefficient of
determination is used. As the Adjusted R – Squared value is .791, we may assert that the model
is reasonably well-fitting.

4.5 Testing the hypothesis

H1: Firm H2: Firm Efficiency H3: Firm H4: Firm H5: Firm
Efficiency and and Leverage Efficiency and Efficiency and Efficiency and
Liquidity Productivity Profitability Working Capital
P-test 0.0000 0.1305 0.0507 0.4645 0.1734
Analysis P> a P<a P>a P<a P>a

In the above table, to test the hypothesis we used the significance level of 0.1. So, the value of
alpha (a) = 0.1, If probability (p) is less than alpha (a=0.1), we reject the null hypothesis. If
probability (p) is more than alpha (a=0.1), we fail to reject the null hypothesis.

25
1. H1: For Firm Efficiency and Liquidity, p is more than a, hence we fail to reject the null
hypothesis and must accept it. This explains there is no notable relation between Firm
Efficiency and Liquidity.
2. H2: Firm Efficiency and Leverage, p is less than a, thus we reject the null hypothesis, that
defines there is significant relationship between the two variables Firm Efficiency and
Leverage.
3. H3: For Firm Efficiency and Productivity structure, p is more than a, hence we fail to reject
the null hypothesis and must accept it. This explains there is no notable relation between Firm
Efficiency and Productivity.
4. H4: Firm Efficiency and Profitability, p is less than a, thus the study rejects the null
hypothesis, that defines there is significant relationship between the two variables Firm
Efficiency and Profitability.
5. H5: For Firm Efficiency and Working Capital, p is more than a, hence we fail to reject the
null hypothesis and must accept it. This explains there is no notable relation between Firm
Efficiency and Working Capital.

4.6 Prob (F-statistic)

Again, taking a look at Table 3, The F-statistic is 0.000004 which is lower than the significance
level (0.1). That means null hypothesis will be rejected and there is significant relationship
between the independent and dependent variables.

26
 Chapter 5: Discussion and Conclusion

The study indicated a shift in the capital structure in the capital structure of the Bangladeshi
private banks, based on the examination of the determinants of the capital structure, including
dependency, independent and control variables. This study uncovers different sorts of debt
ratios, most of which are total debt, while others have an indebtedness-to-debt ratio for short-
or long-term purposes. Because of the lack of a coherent framework, however, many variables
remain to be calculated in the capital structure (Mazur 2007) there are still conflicting choices
of metrics for the corporate capital structure. Various aspects connected to the structure of the
economy were uncovered during the literature review. However, the investigation showed that
the composition, scale, profitability, and efficiency of enterprises are the primary determinants
of the capital structure. Some investigators have noticed that the productivity and efficiency
have a favourable relationship to the determinants, while others have no meaningful
correlations (Eriotis et. l., 2007; Esperança et. l., 2003; Parrino et. l., 2005). The study also
reveals that, although significant quantities of diverse studies relating to the determinants of
the firm efficiency still exists in analysing this subject and more must be done. In Bangladesh's
view the framework for properties, age and legal regulation should be harmonised and
standardized. This means that the company has estimated standards with developed countries
more competitively on the overseas market in the country. The stability of legal infrastructure
businesses has been strengthened by their establishment, their exercise, and the
competitiveness through market activity
No debt studies allowing testing of all the possibilities given are subject to Bangladeshi
corporations on Dhaka Stock Exchange. First of all, there is the reverse relationship between
working capital and firm efficiency. The conclusions gained were corroborated by observations
from the theory of peck order. This would require asymmetry of management and investors in
detail. However, in view of the financial market conditions in Bangladesh it is extremely
neutral to assess the financing strategy of businesses. A growing company could confront
growing challenges with Woking capital management. We looked at listed companies with an
obvious solution to equity difficulties. The decrease in the firm efficiency of major operators
could represent their specific reluctance to assume and transfer financial risks to shareholders.
It has its advantages and disadvantages. Reducing efficiency implies a lack of economic
capacity for a corporation. This is an example of a conservative policy of funding: stable, free
of severe threats to insolvency and reduced profitability. Additional study findings are verified

27
as well. The negative association between debt and profitability is further proof. Equity-funded
profitability can be insufficient. Investment proposals are too conservative. Companies
therefore cannot utilise their growth resources to their maximum. Firm Efficiency reluctance
to bigger companies could possibly be caused by their limited ability to use tax insurance. In
these instances, increasing profitability cannot assist economically, as the company is
expending a great deal of its fiscal surplus (Esperança et.al. 2003; Parrino et al., 2005)

5.1 Conclusion
The results also represent the inefficient use of Firm Efficiency by a corporation. On the other
hand, more stable companies with higher levels of Firm Efficiency and profitability have a
conservative approach to financing. Working companies with leverage in their plans should get
a superior net performance as a result of tax coverage. But if a growth in assets (debt) did not
result in a gain in profits, debt financing would not be worthwhile. Furthermore, if a study leads
to the danger of liquidity loss, Working Capital Management funding can be abandoned.
Scholarships show that business growth with fixed assets is non-study, and they choose safer
equity financing without such a relationship appearing to occur. The study found that
companies measure their incomes in nominal terms in less and more indebted companies.
Companies of same size with comparable gross income have different net profitability. Gross
profitability must be higher for debt companies to achieve a comparable net profitability. This
can help clarify the relationship between financial performance and total capital management.
There was also no hypothesis of tangibility. The increase in debt does not lead to an increase
in the value of fixed assets. This means that companies covered by the study are not employing
fixed assets to protect their liabilities. The first and greatest outcome of this relationship is the
inverse relationship between the business dimension and capital management. The corporation
has also analysed its growth rate and debt. In conjunction with this, increased debt. However,
modifications in the assessment of fixed assets are not prevented. The remaining links indicate
a cautious funding strategy. The association noticed. Fixed assets are generally backed with
shares through negative linkages between the organization of the assets and the capital. There
can potentially be two interpretations. It has a favourable function on the one hand as it will
allow the debt expansion and the use of fixed assets as security in the future. However, it might
be caused by low production of fixed assets.

28
5.2 Future Research
The results of this research should be comprehended easily, as it is a study of significant
importance for the company. First, it focuses only on the Private Banks situated in Bangladesh
not the whole RMG sectors. It was simply because the Private Banks in Bangladesh received
little attention, because it is quite hard for the enterprises in Bangladesh to find means to finance
their businesses. Second, just Ten Private Banks of Bangladesh are researched here (Dhaka
Stock Exchange listed). This is also panel data utilized for analyses, complemented with only
Seven years of data from the panel. In future study, the number of sampled companies used
can be expanded if their conclusions are near to the results of this investigation. Some other
companies can, however, contain the correct outcome and portray the landscape of the Private
Banks.

29
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