Optimizing firm value: A panel threshold analysis of manufacturing firms’ capital structure listed in Dhaka stock exchange

Abstract

This research investigates the complex interrelationship between strategic capital structure choices and their impact on the firm's value. This study looks at 29 leading manufacturing firms, both in engineering and textile industries listed with the Dhaka Stock Exchange, from 2010 through 2023. The analysis performs nonlinear threshold effects related to capital structure, with the selection of Tobin’s Q as the representative indicator of firm value, while the D/E ratio serves as the main explanatory variable. The study employs a panel threshold regression model, which identifies a critical D/E ratio of 1.51, above which the leverage effects on firm value become significantly negative. Descriptive statistics and correlation analysis reveal that there are reliable financial trends among companies, where profitability and growth are directly linked to market valuation. The outcomes demonstrate the importance of keeping leverage at a moderate level to enhance business value and prevent the adverse effects of too much debt. This study improves awareness of capital structure in emerging markets, enabling policymakers and business managers to make more informed decisions and contribute to advancing financial practices.