Impact of WACC on Firm Profitability: Evidence from Food and Allied Industry of Bangladesh

TL;DR

This study investigates how the weighted average cost of capital (WACC) influences profitability in Bangladeshi food and allied firms, finding a significant negative relationship over 15 years.

Contribution

It provides empirical evidence of WACC's impact on firm profitability using panel data and fixed effects regression in the Bangladeshi food industry.

Findings

WACC is negatively related to profitability.

The relationship is statistically significant.

Study covers 15 years of data.

Abstract

The research paper aims to analyze the underlying relationship in between the profitability and cost of funds of a firm. A total of twelve companies were selected as a sample for this study which are listed in Dhaka Stock Exchange under Food and Allied Industry. A panel data set of 15 years from 2005 to 2019 was used to conduct the necessary analysis. In this paper, Return on Asset (ROA) is used as the accounting criteria of profitability. WACC is the independent variable while Firm Size, Firm Age and Firm Leverage are used as control variable for the study. Fixed Effects Panel Regression Model is used to analyze the dataset. The result of the analysis shows that WACC is negatively related with the profitability measure and this relationship is significant. The study has potential to be replicated by other industries like textile, cement, pharmaceutical & chemical, fuel & power, tannery etc.