OPERATING CASH FLOW AND

CAPITAL INVESTMENT IN TEXTILE

INDUSTRY OF BANGLADESH
 A Project Paper
on
Operating Cash Flow and Capital Investment
in Textile Industry of Bangladesh

Submitted To
Department of Finance

University of Dhaka

Supervised By Submitted By
Dr. M. Sadiqul Islam Muktadir Billah
Professor Id No.: 20-005
Department of Finance Section: A, BBA 20th batch
University of Dhaka Department of Finance
University of Dhaka

Date of Submission: 30th April 2018

 Letter of Transmittal
30th April, 2018

Dr. M. Sadiqul Islam

Professor
Department of Finance
University of Dhaka

Subject: Submission of Project Paper on “Operating Cash Flow and Capital Investment
in Textile Industry of Bangladesh”

Sir,
I have the honor to state that I am Muktadir Billah bearing ID No. 20-005, a student of BBA
20th Batch, Department of Finance, University of Dhaka. You have assigned me to prepare a
project paper on “Operating Cash Flow and Capital Investment in Textiles Industry of
Bangladesh” as a partial requirement of Internship Program.

It was an opportunity of rediscovering my potentials and full of excitement. This project

paper gave me an occasion to apply my theoretical expertise, sharpen my views and ideas
which will be a good head start for my future professional career.

I would like to convey my special thanks and gratitude to you for patronizing my effort & for
giving me proper guidance and valuable advice. I have tried to give my best effort to
complete the report successfully. If I have any unintentional error that may have entered into
the report will be considered with sympathy.

I therefore, would like to request you to accept the project paper on the assigned topic. I
earnestly request you to call upon me if you think any further work should be done on the
topic.

Sincerely Yours
Muktadir Billah
ID. No.: 20-005
Section: A, BBA 20th Batch
Department of Finance
University of Dhaka

Signature

i
 Declaration
I, Muktadir Billah, hereby declare that the project paper on “Operating Cash Flow and
Capital Investment in Textiles Industry of Bangladesh” is uniquely prepared by me after
the collection and analysis of all the required data from annual reports, financial statements
and websites of Dhaka Stock Exchange and Bangladesh Securities and Exchange
Commission.

The presented project paper does not breach any existing copyright and no portion of this
report is directly copied from any work done before. The data for this work are collected
from financial reports of all textile companies that are listed in Dhaka Stock Exchange,
articles, government laws and guidelines associated with the contents of the report and from
my personal experience.

I also confirm that the project paper is prepared only for my academic requirement, not for
any other purpose.

Muktadir Billah

ID. No.: 20-005

Section: A, BBA 20th Batch

Department of Finance

University of Dhaka

Signature

ii
 Letter of Certification
This is to certify that the project paper on “Operating Cash Flow and Capital Investment
in Textiles Industry of Bangladesh” has been successfully prepared by Muktadir Billah, ID
No: 20-005, BBA 20th Batch as a partial requirement of the BBA program under Department
of Finance, University of Dhaka.

I have found him sincere, hardworking and devoted to his duty while he was preparing this
project paper under my supervision and guidance. I am glad and very much satisfied with his
performance.

I wish him every success in all respects.

Dr. M. Sadiqul Islam

Professor,
Department of Finance
University of Dhaka
Date: 30th April, 2018

iii
 Acknowledgement
At first, I would like to express my gratitude from my heart to Almighty Allah for giving me
the strength and patience to prepare the project paper properly within the scheduled time.

Then, I would like to thank my honorable teacher Dr. M. Sadiqul Islam, Professor,
Department of Finance, University of Dhaka. I am especially grateful to my respected teacher
and supervisor for his constant presence and valuable instruction during the time of
preparation of the project paper.

I would also like to thank all of my friends who have given me courage and valuable
suggestion for the preparation of the project paper.

iv
 Abstract
Textile industry is one of the fastest growing industries in Bangladesh. It is considered as the
major source of export revenue. The demand for Bangladeshi textile products is increasing
continuously. This project paper is on an important issue of textile industry that is capital
investment by the companies in that industry. In the first section an overview of the industry
is given along with the objectives of the study. This section also includes scope of the study
and limitations of the study. Next section includes literature review where a summary of the
earlier research on cash flow and capital investment is shown. Then, in methodology section
the techniques of analysis are shown which includes analysis of descriptive statistics and
regression analysis. The variables and data sources are also explained in this section. After
that, an overview of securities market in Bangladesh is given with performance of textile
industry. In the analysis and finding section descriptive statistics results are shown along with
analysis of mean capital investment by various quartiles. The results of regression analysis
are shown here which includes fixed effects regression, random-effects GLS regression
Correlation matrix and Hausman Test. In the final section a summary of the major findings
has been given with their implications in decision making.

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 Table of Contents
Chapter Contents Page
Chapter- 1: Introduction 1.1 Overview of the Industry 2
1.2 Origin of the Study 3
1.3 Objective of the Study 3
1.4 Rationale of the Study 3
1.5 Scope of the Study 4
1.6 Limitations of the Study 4
Chapter- 2: Literature Review 2.1 Literature Review 6
Chapter- 3: Methodology 3.1 Techniques of Analysis 10
3.2 Model Specification 10
3.3 Variables 11
3.4 Variable Definitions 12
3.5 Sample 13
3.6 Sources of Data 13
Chapter 4: Securities Market 4.1 Securities Market 15
in Bangladesh 4.2 Securities Market in Bangladesh 15
4.3 Institutional Framework of Securities Market in 16
Bangladesh
4.4 Regulatory Framework of Securities Market in 18
Bangladesh
4.5 Performance of Dhaka Stock Exchange 21
4.6 History of Textile Industry 28
4.7 Performance of Textile Industry 29
4.8 Market Share of Companies in the Textile Industry 33
4.9 Future Prospects of Textile Industry in Bangladesh 37
Chapter- 5: Analysis and 5.1 Descriptive Statistics 39
Findings 5.2 Average Capital Investment by Year 41
5.3 Analysis of Capital Investment by Companies 43
5.4 Regression Analysis 55
Chapter- 6: Conclusions and Conclusions and Policy Implications 62
Policy Implications
References 63
Appendix 64

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Chapter- 1

Introduction

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1.1 Overview of the Industry
Textile industry is one of the most potential industries in Bangladesh. This industry mainly
focuses on the production, designing and selling of yarn and clothing. Raw materials are
mainly indigenous yarn or products of chemical industry. The contribution of textile industry
in the economy of Bangladesh is huge. It is the fastest growing export oriented industry of
Bangladesh. Bangladesh is the second largest exporter of textile products after China. It is
contributing around 82% in the export earnings of the country. So, the importance of the
textile industry of Bangladesh is not just confined within the country. It has crossed the
national broader to reach people around the order. The industry is adding a major amount in
the GDP of Bangladesh. It is also a major source of employment in Bangladesh. In Asia,
Bangladesh is the one of the biggest largest exporter of textile products providing
employment to a great share percent of the work force in the country. As, there are a large
number of companies in the industry, it requires large number of skilled or unskilled workers.
Most of the workers are women. So, it is the main source of employment for women in
Bangladesh. They perform various tasks like weaving, knitting, dyeing, printing and
finishing.

Textile industry is also a potential source of investment. The labor cost is much lower.
Initially some equipments and machinery are required which requires much amount. But, it is
lower than other industries. Because of such advantages, foreign investment in that industry
is increasing day by day. Bangladesh is a major textile product exporting country. This sector
has earned US$ 28,149.9 million in fiscal year 2017 with a growth of 0.2% from 2016. It is
80.7% of total export earning in that year and 12.36% of the GDP. So, there is an increasing
trend in the export of textile industry. There are around 4 million people working in the
industry. It is the largest industry in Bangladesh. But, the industry is still expanding. The
industry is facing some challenges like inadequate supply of raw materials, inadequate
infrastructure and unfavorable trade policies. So, the firms need to import raw materials from
other countries which cost a lot. This results in decreasing export earnings from that industry,

As the demand for textile product is increasing year over year, more and more companies are
entering into the industry and making it a competitive one. There are many obstacles within
the industry. But, these can be reduced with support from government and advantage of
having improved transportation and advanced technologies. The quality of textile products
should be increased to maintain its position in the international market. Working condition

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should be developed and more and more companies should be established with the help of
government and Bangladesh textile mills association. Government should be aware of the
compliance of rules and regulations by the firms.

1.2 Origin of the Study

This report is prepared for the partial requirement of the BBA program of Department of
Finance, University of Dhaka under the academic supervision of Professor Dr. M. Sadiqul
Islam, Professor, Department of Finance, University of Dhaka. The topic of the report is
“Operating Cash Flow and Capital Investment in Textile Industry of Bangladesh.”

1.3 Objective of the Study

The main objectives of the study are given below:

a) To analyze the capital investment by companies listed with DSE in textile industry
b) To examine the relationship between operating cash flow and capital investment by
companies listed with DSE in textile industry

1.4 Rationale of the Study

Cash flow is considered as the blood of a business. No business can be started without cash.
There is an evident relation between cash flow of a firm and its investment activities. If the
firm is able to generate much amount of positive cash flows, it can be able to invest for
further increase of wealth. Cash flows are also required to meet the obligations to other
parties. So, analyzing the operating cash flow of a firm, its stakeholders can be able to know
its ability to meet the obligations.

An organization should have proper knowledge of its operating cash flow. Such knowledge
will help the firm in making quick decisions. If, the firm have much cash in hand it can invest
these cash for generating profit. Regulators of the market also need to know about cash flows
of the firms to regulate properly. Again investors can make investment decision based on the
firms’ cash flow and earnings. Security analysts and policy holders also need such
information for their analysis and decision making purposes. So, the knowledge of cash flow
is important to the firm, its investors and the market regulators.

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Textile industry is one of the largest and fastest growing industries of Bangladesh. So, its
impact on our economy is significant. It is the source of employment for a large number of
people. There is increased international demand for the products of textile industry of
Bangladesh. These products are exported to many western countries. These generates huge
amount of export earnings. So, the industry is contributing much in the economy. The
analysis of cash flow and capital investment of such a broad industry is thus important.

1.5 Scope of the Study

This study contains an analysis of the cash flow and capital investment of textile industry
over the period of 2000-2017. Here, various techniques to analyze cash flow and capital
investments are used along with regression analysis. This report also contains literature
review about cash flow and capital investment. As textile industry of Bangladesh is a broad
one, there is a vast scope of analysis and determining the performance of the companies with
respect to cash flow and capital investment.

1.6 Limitations of the Study

When preparing the project paper I have faced some limitations. As I am new in this
field of study, I have faced lack of experience. I have faced lack of in depth
knowledge about writing such report. I have also faced time constraint, as I am new in
this field of practical scenario analysis.

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 Chapter- 2

Literature Review

5|Page
2.1 Literature Review

Cash flow is an important part of making investment decision. Cash flow should be
considered while evaluating company’s ability and strength for making long term
investments. Stockholders of publicly traded firms can be able to know about firms operating
cash flow from the annual reports. It helps them making proper decision. In textile industry
most of the firms have capital investment in every as they have to upgrade their property,
plant and equipment. So, evaluation of operating cash flow and determination of its relation
with capital investment is thus significant. But, there are some controversy about the
relationship between operating cash flow and capital investment.

Many studies have been conducted to determine the effect of internally generated cash flow
on capital investment, but the reason of this effect is not well known. According to
irrelevance proposition, firms take all positive NPV projects regardless of the source of
financing (Modigliani and Miller, 1958).

Jensen (1986) explained that a firm can be able to invest in long term positive NPV project
provided it has the required cash inflow. Adequate cash in hand ensures the fulfillment of the
obligations of creditors, employees and other parties. If there is not enough cash flow or a
negative cash flow, the firm can end in bankruptcy. But, excess cash flow may be wasted or
may have a negative impact on capital investment as managers try to raise the assets of the
firm rather than giving them to shareholders.

Myers and Majluf (1984) explained that generation of enough cash flow to finance capital
investment gives the companies good investment opportunities for growth. They also said
that cash flow is dependent to expected return from new investment.

Devereux and Schiantareelli (1990) conducted research on UK firms to examine the

relationship between cash flow and capital investment. They said that the larger firms in UK
mainly rely on cash flow financing due to the agency conflict between managers and
shareholders. As the cost of monitoring is high, the conflict arises.

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Morck, Shleifer, and Vishny (1988) examined the relationship between insider ownership and
cash flow. Firms with high insider ownership may finance capital investment with just
internal cash flow from operation to avoid the loss of position of their ownership.

Strong and Meyer (1990) examined the relationship between discretionary investment, share
price and cash flow. They found that discriminatory investment is negatively related to share
price and positively related to cash flow. They concluded that cash flow can be thus used to
finance investment expenditures.

Vogt (1994) examined that companies that do not pay dividend may show a strong
relationship between cash flow and capital investment while other companies that pay
dividend show a weak relationship between cash flow and capital investment. These results
indicate that small firms depend on cash flows as they have low dividend policy.

James A. Gentry (1990) examined the relationship of capital spending and total cash outflow
and found out that 60 percent or more cash outflows goes to capital investment. Larger
companies invested a higher percentage of their total outflow in plant and equipment than
companies in the other size categories. The small companies invested the lowest percentage
of their total outflows in capital.

Vogt (1997) observed the relationship between cash flow and capital expenditure. The
announced capital expenditure was positively correlated to the level of operating cash flow.
The level of this relationship was higher for the companies with beneficial investment
opportunities, bigger size and higher sponsor ownership. He argued that current period’s cash
flow covers the capital investment of the next period.

Fazzari, Petersen and Hubbard (2000) found that the firms that have lower dividend depend
on operating cash flow for their capital investment instead of using external financing. They
also said that firms should choose a lower dividend policy in order to save cash flow for
future capital investments.

Moyen (2004) showed a strong relationship between internally generated cash flow and
investment opportunities in his dynamic model. Better investment opportunities add to more
investments and firms without any constraint can increase their externally generated capital to

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fund additional investments. With external financing, the investments in the companies that
are unconstrained are more sensitive to cash flow in comparison with the firms that are
financially constrained and don’t use external financing.

Pratap and Rendon (2003) combined financial and real frictions to interpret two thoughts in
the investment literature. First one is that firms with liquidity constraint do not change their
capital investment in response to change in incremental cash flow. Second one is that many
firms depend on their internal cash flow rather than external financing for their investment
activities. They showed that due to non-convexities in the adjustment cost of technology, the
investment may not be sensitive to cash flow for some liquidity constrained firms.

Lyandres (2007) stated that by changing the timing of the investment, the costs of external
financing influence both the investment level and its relation and sensitivity to the level of
cash flow. He also said that when the cost of external financing grows, the sensitivity of
investment to cash flow increases at the same rate.

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Chapter- 3

Methodology

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3.1 Techniques of Analysis

In this report various techniques are used to analyze the collected primary data and determine
the relationship between cash flow and capital investment. Descriptive statistics is used to
determine the overall characteristics of the collected data. Mean and standard deviation are
calculated as the parameters. Then mean capital investment is calculated for the data set by
dividing the data for each year into four quartiles and sorting by size, age, total asset
turnover, operating cash flow and operating cash flow to total asset ratio. In the next section
regression analysis is used to determine the strength of relationship between operating cash
flow and investment in property, plant and equipment. Here, Fixed Effects and Random
Effects Generalized Least Square methods are used. Then, Hausman Test is used to
determine the model that is appropriate for analysis. If, the p value of Hausman Test is
greater than 5%, then Random Effects Generalized Least Square method will be appropriate.
Otherwise, Fixed Effects regression model will be appropriate. Using the appropriate model
the strength of relationship between operating cash flow and capital investment has been
analyzed.

3.2 Model Specification

After identifying the regression model, next task is to formulate the model for the problem.
The model explains a variable in terms of explanatory and control variables. Model is
formulated based on considering the theory rather than empirical evidence. In a Random
Effect Generalized Least Square model a variable is used to show the relationship between
explanatory variable and control variable and the variable to be explained. The regression
analysis has three steps namely model formulation, estimation of parameters and
interpretation of parameters. Before parameters are calculated, it is necessary to formulate the
regression model or equation. Next two steps depend on the correct formulation of the model.
As we have the information about the variable to be determined and the variables that will be
used in determination of the variable, we can form the Random Effect Generalized Least
Square model equation. The regression equation is as follows:

lnppe = α + β1 ageit + β2 lntait + β3 tdebt_assetit + β4 tatoit + β5 instit + β6 publicit + β7

foreignit + β8 ocf_tait + β9 inddirit + β10 brdsizeit + β11 govtnomit + εit

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Where,

lnppe= Natural logarithm of investment in property, plant and equipment

α= Intercept of the model

β= Coefficient of each variable

age= Indicator of learning effect

lnta= Natural logarithm of total assets

tdebt_asset= Measure of capital structure

tato= Asset utilization

inst= Fraction of institutional shareholding

public= Fraction of public shareholding

foreign= Fraction of foreign shareholding

ocf_ta= Operating cash flow to total asset ratio

inddir= No. of independent directors in the board of directors

brdsize= No. of members in the board of directors

govtnom= No. of government nominee in the board of directors

ε= Random error term

i= Name of the company

t= Time (year)

3.3 Variables

Here, two types of variables are used to analyze the cash flow and capital investment in
textile industry.

Explanatory Variable

 ocf= Operating cash flow

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Control Variable

 invppe= Investment in property, plant and equipment

Other Control Variables

 age= Indicator of learning effect

 lnta= Natural logarithm of total assets
 tdebt_assets= Total debt to total assets (leverage)
 tato= Total assets turnover
 inst= Institutional ownership
 public= Public ownership
 foreign= Foreign ownership
 inddir= No. of independent directors in the board of directors
 brdsize= No. of members in the board of directors
 govtnom= No. of government nominee in the board of directors

3.4 Variable Definitions

The variables that are used needs to be defined for having a clear view. These variables are
explained below:

 Investment in property, plant and equipment: Investment in property, plant and

equipment is a firm’s investment on plant assets each year. The amount of this
variable is collected from cash flow statement of the companies.
 Size: Size of a company is measured by its total assets. Firms having more assets are
likely to make more investment.
 Age: Age is the difference between year of commencement and the year which is
considered. It is an indicator of learning effect. As the firms get older they change
their behavior. So, the age of earlier commenced firms is greater than that of recently
commenced firms.
 Log of total assets: It is natural logarithm of total assets. Some data are not normally
distributed, so logarithm is taken to make that data set normally distributed one.
 Total debt to total assets: It is calculated by dividing total debt by total assets. It is a
measure of financial leverage.

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  Total assets turnover: It is calculated by dividing sales by total assets. So, it shows
the relationship between sales and total assets. It is a measure of operating efficiency.
 Institutional ownership: It is the percentage of total shares that is hold by financial
institutions or companies.
 Public ownership: Percentage of total shares that is hold by general public.
 Foreign ownership: It is the percentage of shares that is hold by foreign institutions
or companies. These are called foreign direct investments.
 Operating cash flow to total assets: Operating cash flow divided by total assets. It
measures how efficiently a firm’s assets are used to generate cash.
 Board size: Number of members in the board of directors. If the board size is larger,
company performs better.
 Independent directors: Number of independent directors in the board. Firms having
more independent directors are seen to perform better.
 Government nominee: Number of government nominee in the board. If management
of a company is controlled by government nominee, activities of the company may be
constrained.

3.5 Sample

For the analysis of cash flow and capital investment in textile industry, 48 companies are
selected that are publicly traded there shares and listed in Dhaka Stock Exchange. Here, data
are collected for 18 years for the period of 2000-2017. But, some companies are listed after
2000. So, data for these companies are collected from their listing year. Two companies have
not held their AGM for 2017. So, data of these two companies for the year 2017 have not
been found.

3.6 Sources of Data

Data are collected from the annual reports of the selected companies for the period of 2000-
2017. Basically, audited financial statements like Balance Sheet or Income Statements are
mainly used to collect financial data. Some, data are collected from director’s report included
in annual report. Again, DSE monthly review is also used. For the collection of annual report,
I have visited Dhaka Stock Exchange, Bangladesh Securities and Exchange Commission. I
have also visited some websites like websites of individual company, Dhaka Stock Exchange
and Lanka Bangla Financial Portal etc.

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 Chapter- 4

Securities Market in
Bangladesh

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4.1 Securities Market

Presence of securities market is very much important for the economic development of a
country. As, Bangladesh is a developing country, the importance of securities market is
increased sharply.

Securities market plays an important role in bringing deficit units and surplus units together
in a place. Then, the market facilitates the transfer of fund from surplus unit to deficit unit.
Surplus units have excess fund and deficit units have shortage of fund. So, excess funds that
are collected from surplus units are used in productive activities. Households are the main
types of surplus unit. Deficit units mainly include business organization. These organizations
sell long term securities in the securities market. These securities include shares, bonds,
debentures etc. Security is a certificate representing the claim on the issuer or business
organization. A securities market that is performing well is a key factor in high economic
growth and poorly performing securities market is results in low economic growth.

4.2 Securities Market in Bangladesh

Securities market of Bangladesh is the smallest one in the world. It has growth potential. The
number of listed companies is increasing in the securities market of Bangladesh. As, it is a
developing country, more and more business firms are being established that require capital
to start their business operation. So, there is incremental growth in the capital market of
Bangladesh. In 2008-2009 there was a crash in the global securities market. The securities
market of Bangladesh also suffered a decline. But, it has been recovered from that decline.

As it is a market that involves both the sponsors and investors, the need for a healthy and
stable market became necessary. Through various forms of reforms and automation the
securities market of Bangladesh won the confidence of investors. In addition to that, the
government facilitated our securities market by structuring its monetary and fiscal policies
that best serves the interest of that market.

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4.3 Institutional Framework of Securities Market in Bangladesh

There are two stock exchanges in Bangladesh. These exchanges mainly facilitate the
secondary transaction of securities. Another organization makes the settlement of these
transactions. The objectives and functions of these organizations are discussed below:

4.3.1 Dhaka Stock Exchange Limited

Dhaka Stock Exchange Limited (DSE) is the first stock exchange of Bangladesh. It was
incorporated on 28 April 1954 as East Pakistan Stock Exchange Association Limited. It
started trading in 1956. It was renamed as East Pakistan Stock Exchange Limited on 23 June
1962. Again it was renamed as Dacca Stock Exchange Limited on 13 May 1964. Its trading
was discontinued for five years after liberation war of Bangladesh. In 1996 it got its name
‘Dhaka Stock Exchange Limited.’ It is the main stock exchange of Bangladesh. It started
automated trading in 2001.

Dhaka Stock Exchange Limited is a public limited company. It is established and managed
under Company Act 1994, Security and Exchange Commission Act 1993, Security and
Exchange Commission Regulation 1994. Its authorized capital is Tk. 25,000,000,000. Paid up
capital is Tk. 18,037,765,000 consisting of 1,803,776,500 shares of Tk. 10 par. Its functions
include listing of the company and facilitating trading operation to the market participants.

Its indices are DSEX, DSE30 and DSE Shariah. DSEX covers all the companies. It is thus a
broad index. DSE 30 covers the 30 companies that have highest market capitalization. DSE
Shariah covers the companies that comply with Shariah.

4.3.2 Chittagong Stock Exchange Limited

Chittagong Stock Exchange Limited (CSE) is the second stock exchange in Bangladesh. To
develop capital market as well as to strengthen and to dynamite the capital of the country.
Chittagong Stock Exchange Limited was established on 1 April 1995. CSE was registered
under the Company Act 1994, as a non-profit organization and started trading on the floor on
10 October 1995. It started internet based trading system in 2004. Its authorized capital is
Tk. 10,000,000,000. Paid up capital is Tk. 6,345,248,400 consisting of 634,524,840 shares of
Tk. 10 each.

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Chittagong Stock Exchange has two indices namely CSE50 and CSE Shariah Index (CSI).
CSE50 is the benchmark index of the stock exchange covering 50 companies that have
highest market capitalization. CSE Shariah Index includes Shariah compliant companies.

4.3.3 Bangladesh Securities and Exchange Commission

Bangladesh Securities and Exchange Commission (BSEC) was established on June 8, 1993
under the Securities and Exchange Commission 1993 as the regulator of the country’s capital
market with a view to regulate the issuance of securities, protection of investors’ interest and
development of capital markets and development of these markets in Bangladesh. Through an
amendment of the Securities and Exchange Commission Act, 1993, on December 10, 2012,
its name has been changed as Bangladesh Securities and Exchange Commission from
previous Securities and Exchange Commission.

Bangladesh Securities and Exchange Commission has various departments that perform
various tasks related to the regulation of securities market. Some of these departments are
capital issue department, capital market regulatory reforms and compliance department,
central depository system department, Enforcement department, international affairs
department, law department, supervision and regulation of intermediaries department etc.
Functions of these departments are coordinated for the purpose of regulation.

4.3.4 Central Depository Bangladesh Limited

Central Depository Bangladesh Limited (CDBL) provides the settlement of trade on two
stock exchanges. It was incorporated in 2000 as a public limited company. Its core services
are efficient delivery, settlement and transfer of securities through computerized book entry
system. Although, it does not deposit like banks, it deposits securities. Investors can open
account and can be able to transfer securities and settle transactions through electronic
system. CDBL performs under the Settlement of Settlement of Stock Exchange Transactions
Regulations 1998. CDBL provides various services like account opening, off-market
settlement, demutualization, re-materialization, pledge etc.

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4.4 Regulatory Framework of Securities Market in Bangladesh

There are some acts that regulate the listing and trade of securities in the market. Bangladesh
Securities and Exchange commission acts as the apex body of regulation of securities market
in Bangladesh. The acts that regulate the securities market are discussed below:

4.4.1 The Securities and Exchange Ordinance 1969

The provisions of this act keep the share market from unexpected fluctuations. Investors have
a tendency toward short sells. So, if there is expected price fall in future, they sell their shares
short and purchase when price raise. This short sell can result in temporary imbalance in the
market price. This act also prohibits the insider trading of stock by directors, employees and
principal shareholders. This ordinance also focuses on maintaining the secrecy of
shareholders and giving punishment for disclosing secret information about market
participants.

4.4.2 The Securities and Exchange Rules 1987

This rule gives definition of Securities and Exchange Commission members based on
transaction of members’ business and submission of periodical returns and annual reports by
the stock exchange and listing of a security and submission of annual report by the issuer.
This rule also gives focus to maintain adequate funds to maintain the business transactions.
Provisions of this rule may make the members of stock exchange more liable that may create
favorable situation for unscrupulous exploitation on the vulnerability of the financial position
of the members.

4.4.3 Securities and Exchange Commission Act 1993

This act states the responsibilities and functions of Bangladesh Securities and Exchange
Commission. Under this act, BSEC is empowered to issue notifications and orders for the
purpose of the regulation of securities market. This act also states that no broker, transfer
agent underwriter, issue manager, underwriter, portfolio manager or other intermediaries
associated with securities market can sell or deal on securities without obtaining registration
certificate from the commission.

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4.4.4 Securities and Exchange Commission Regulation 1994

It is related to the regulation of merchant banks. Under this act a full fledged merchant bank
should have paid-up capital of Tk. 100 crore. It also calls for imposition of a penalty on the
merchant bank that fails to manage the funds of its clients under the provision of the law.

4.4.5 The Companies Act 1994

This act deals with the establishment of company and other issues related to companies.
Government can notify the District Court to fulfill legal obligation if it thinks all conditions
are fit according to the act. Due to some weaknesses the act is unable to control stock market
anomaly properly. The penalty for non compliance of some provisions is inadequate. For this
reason companies do not feel accountable for their failure to maintain the provisions of the
act.

4.4.6 Settlement of Stock Exchange Transactions Regulations 1998

This regulation deals with clearing and settlement of transactions. Clearing is the facilities
provided by stock exchanges for the completion of transaction through receipts and deliveries
of securities. This act defines Settlement Day as the day on which trading day’s transactions
are settled through physical delivery of securities by the stock exchange members to the
Clearing House of the DSE. This day is different for ‘Z’ category companies from that of
other companies. For other categories settlement day is first day subsequent to trading day
and for ‘Z’ category companies it is fourth day subsequent to trading day. This regulation is
not now in force. New regulations are named Dhaka Stock Exchange (Settlement of
Transactions) Regulations 2013.

4.4.7 Listing Regulations of Dhaka Stock Exchange

Company cannot transact dealings of securities in the stock exchange if they have not listed
or permission is not granted in accordance with the regulations which deal with the listing of
companies. Companies must have their application for listing granted by the stock exchange.

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4.4.8 SEC Merchant Banker and Portfolio Manager Act 1996

This act deals with the registration and responsibilities of a Merchant Banker or a Portfolio
Manager. A conflict has arisen between this act and the Bank Companies Act 1994. Under
banking companies act trading shares under unanimous names is prohibited. But, shares are
traded using omnibus account that meets the condition of this act.

4.4.9 Dhaka Stock Exchange Automated Trading Regulations 1999

This act deals with trading related issues. This act specifies that trading of securities shall be
opened all days except bank holidays. But, DSE Council has the power to pause the
transaction for a day considering situation. The act also specifies the time of a day on which
trade shall be opened. Under this act DSE is responsible to make the system available to the
traders when trade is being opened. The act specifies four types of markets namely Public
Market, Spot Market, Block Market and Odd Lot Market. This act mentions the transaction
limit of a stock exchange member. If a member exceeds the limit, he will be automatically
suspended by the system.

4.4.10 Margin Rules 1999

Margin is a form of credit facilities. Margin Rules 1999 gives the members of stock exchange
the power to provide margin loans to the investors. There should be a written agreement
between the member and the client about the rule. The client can deposit margin in the form
of cash or securities issued by government etc. The client shall give authorization to the
member to sell, pledge, mortgage or hypothecate the client’s securities for a sum, not more
than the debit balance in the margin account. This is a security to the member. If any client
fails to maintain margin, the member can recover the amount by selling property or security.
Such nature of margin account triggers stock market crash.

4.4.11 Securities & Exchange Commission (Stock Dealer, Stock Broker and
Authorized Representative) Regulations 2000

This regulation controls the trading activities of dealers, brokers and authorized
representatives. These regulations cover the areas related to registration of such parties like

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application for registration and duration of registration etc. BSEC may audit the accounts at
any time and issues related to such audit have also been covered under this regulation.

4.5 Performance of Dhaka Stock Exchange

Dhaka Stock Exchange is the first and the largest stock exchange of Bangladesh. This stock
exchange has gone through many ups and downs. The performance of the stock exchange
depends on various factors like economic condition, political situations etc.

There are 22 sectors of companies in Dhaka Stock Exchange and total 570 companies are
listed. Among these sectors, treasury bond is the largest with 221 companies and textile is the
second largest with 48 companies. So, textile industry has a great impact on the performance
of Dhaka Stock Exchange.

DSE has three indices. These are DSEX index, DSE30index and DSE Shariah index. DSEX
includes all the listed companies. DSE30 includes 30 firms that have highest capitalization.
DSE Shariah includes all Shariah complaint firms. As, DSEX is a broad index, it gives the
best measurement of the performance of the stock exchange.

4.5.1 Listed Companies and Securities

Number of listed companies and securities are increasing year by year. Number of listed
companies and securities over the last 10 years are shown in the graph below.

Figure 4.1: Number of Listed Companies and Securities in DSE

600

500

400

300

200

100

0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Listed Companies Listed Securities

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From the graph it is evident that the number of securities and the number of companies is
increasing year by year. Although, there was a decrease in the number of listed companies in
2009 and 2010, the number of securities is showing an increasing trend. So, it can be said that
there is an increasing trend in the number of listed companies and securities over the years.

4.5.2 Movement of DGEN Index: Previously DGEN was considered as the broad
index of DSE. Movement of DGEN index from 2001 to 2017 is shown in the line chart
below.

Figure 4.2: Movement of DGEN Index

9000

8000

7000

6000

5000

4000

3000

2000

1000

0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

DGEN index is showing an increasing trend. It has decreased in 2005, 2006, 2008, 2011 and
2012 from the previous year. In other years it is seen to increase. Its highest value was
8290.41 in 2010. The index was effective up to 2012. In 2013 DSEX index was introduced as
the broad index of DSE.

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4.5.3 Movement of DSEX and DSE30 indices: DSEX is considered as the broad
market index that includes all the securities listed in the market. On the other-hand DSE30
includes 30 securities having highest market capitalization. Both the indices are introduced in
2013. The movement of these indices is shown in the graph below.

Figure 4.3: Movement of DSEX and DSE30 indices

7000

6000

5000

4000

3000

2000

1000

0
2013 2014 2015 2016 2017

DSEX Index Value DSE30 Index Value

These two indices were started in 2013. From the above graph we see that both the indices
are moving increasingly over the 5 years. The value of DSEX index is greater than that of
DSE30. This is because DSEX is considered as the broad index. The values of both indices
were decreased in 2015. The highest value for both the indices was in 2017.

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4.5.4 Market Capitalization of Dhaka Stock Exchange (DSE): Market
capitalization is a measure of total amount of capital in a stock exchange. Market
capitalization of DSE is shown below for the last ten years:

Figure 4.4: Market Capitalization of DSE over the last ten years (Tk. in million)

4500000

4000000

3500000

3000000

2500000

2000000

1500000

1000000

500000

0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Market capitalization of Dhaka Stock Exchange is seen to fluctuate over the last ten years.
Before 2017 the highest market capitalization was in 2010. Then it has decreased in 2011 and
2012. It again decreased in 2015 and then started to increase. In 2017 market capitalization
was Tk. 4,228,945.46 million.

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4.5.5 Turnover of Dhaka Stock Exchange (DSE): Turnover is the amount of total
transactions in Tk. As the trade volume increases, the turnover increases. The turnover of
DSE over the last ten years is discussed as follows:

Figure 4.5: Turnover of DSE for the Last Ten Years

4500000 200%
4000000
150%
3500000
3000000 100%
2500000
50%
2000000
1500000 0%
1000000
-50%
500000
0 -100%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Total Turnover of DSE (Tk. in million) Rate of Change in Turnover

Turnover is showing an increasing trend over the years. In 2010 the turnover was Tk.
4,009,913 million. In 2011 it has decreased dramatically. Then the turnover is seen to
increase up to the year 2014. In 2015 the turnover has decreased again and after that it is
showing an increasing trend. It indicates that the performance of DSE is improving over the
years.

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4.5.6 Turnover to Market Capitalization Ratio: It is the ratio of volume or sale to
total market capitalization. Turnover to market capitalization ratio of DSE over the last ten
years is shown below:

Figure 4.6: Turnover to Market Capitalization Ratio for the Last Ten Years

1.40

1.20

1.00

0.80

0.60

0.40

0.20

0.00
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Turnover to Market Capitalization Ratio

It is seen that the highest ratio was in 2010. It has increased by more than 100% in 2010 and
the bubble occurred and then started to fall. The lowest ratio was in 2015. The ratio is seen to
decline up to 2015. After that the ratio has again started to increase. So, now the ratio is in
increasing trend.

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4.5.7 Sector Wise Market Capitalization: Three broad sectors of Dhaka Stock
Exchange are financial sector, manufacturing sector and service and miscellaneous sector.
Amount of market capitalization by these sectors are shown below in the column chart.

Figure 4.7: Sector Wise Market Capitalization in DSE (Tk. in million)

1800000
1600000
1400000
1200000
1000000
800000
600000
400000
200000
0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Financial Sector Manufacturing Sector Service and Miscellaneous Sector

From the chart we see that in earlier years financial sector shared the highest portion of
market capitalization. This sector includes bank, insurance companies and non bank financial
institutions. Since 2014 manufacturing sector has been sharing the major portion of market
capitalization in DSE. Service and miscellaneous sector also shares more market
capitalization than financial sector. The highest market capitalization for financial sector was
Tk. 1,617,252.47 million in 2010. For manufacturing and service and miscellaneous sector
highest market capitalization were Tk. 1,345,043.76 million and Tk. 1,227,557.01 million
respectively in 2017. So, the market capitalization of manufacturing sector is in increasing
trend over the years.

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4.6 History of Textile Industry

The history of textile industry in Bangladesh was dated be before the independence of the
country. Previously, the producers of textile products worked in small groups called cottage
industry. There are many such producer groups in this area. East Bengal was sufficient in
textile from very earlier times until the Industrial Revolution in the 18th century. The people
of this area produced Muslin, Jamdani and other cotton and silk fabrics. As, these textile
products were produced by skilled craftsman, there reputation spread beyond the sub-
continent. After the industrial revolution of 18th century, machine controlled production
process was developed in the textile sector of England. It caused the products of traditional
craftsmen to face vigorous competition in the textile market. As a result the number of skilled
craftsmen in this area declined who were able to produce high quality fabrics. British
imperialists tried to force the production of traditional craftsmen when there was increased
competition among them. They were too much cruel that they even used to cut off the thumbs
of craftsmen so that they could not work anymore. With the decrease of traditional handloom
production, the production of indigo dye also decreased. As, indigo was a cash crop, the
British administrators in this area forced the farmers to grow indigo to increase their
profitability. Indigo plants exhausted the soil very quickly as they were nitrogen depleting.
Unpredictable nature of the plant was another reason behind the decline of indigo production.
The fabrics produced in British mills captured the market of this sub-continent. The import of
these fabrics was one of the points of argument in the growing movement of the sub-
continent for independence. Textile industry was again recognized as new production
methods were started to develop. Abundance of water was contributed to the development of
machine controlled modern production method in this sub-continent. In 1947, after the
partition East and West Pakistan from India, most of the resources came under the control of
West Pakistan. As, there were scarcity of resources in East Pakistan, the growth of textile
industry was stopped in this area. West Pakistan was thus developing more than East Pakistan
and most of the industries were also owned by West Pakistani industrialists. After the
independence of Bangladesh in 1971, government nationalized textile and other business
sectors that were previously owned by West Pakistanis. As, Bangladeshi industrialists were
not politically powerful, they had to capitulate the control of their fabric mills to the
government. These factories were then nationalized under the Bangladesh Textile Mills
Corporation. From then, the industry has been growing very fast.

28 | P a g e
4.7 Performance of Textile Industry

Textile industry is one of the largest industries of Bangladesh. This industry is contributing to
a major portion of the export earnings of Bangladesh. The demand for Bangladeshi textile
product is increasing all over the world. This is because of the low price of such products. Its
contribution to GDP is also high. But, its market capitalization in Dhaka Stock Exchange is
not so good. The reason is that the capital requirement of this industry is much lower than
that of other industries

4.7.1 Export trend of textile industry over the years: Value of total export of
textile products over the years are shown in the following graph.

Figure 4.8: Export Trend in Textile Industry

30000 50%

25000 40%

20000 30%

15000 20%

10000 10%

5000 0%

0 -10%
2006

2015
2000

2001

2002

2003

2004

2005

2007

2008

2009

2010

2011

2012

2013

2014

2016

2017

Value of Export (USD in million) Growth of Export (Percentage)

From the chart we see that the export of textile industry is growing over the years. The export
has only decreased in 2002. The highest export was USD 28149.84 million in 2017. The
growth rate of textile export is fluctuating over the years. In some years the export is
increasing at n increasing rate and in other years it is increasing at a decreasing rate. The
highest growth rate of export was 43.35% in 2011. It has increased from USD 12496.72
million in 2010 to USD 17914.46 million in 2017. So, the increase of textile export is
contributing to our economy.

29 | P a g e
4.7.2 Textile Export as a Percentage of Total Export: Export from textile
contributes to the largest portion of total export of Bangladesh. This percentage varies year
over year. It was more than 75% over the last few years. So, export earnings from textile are
important for the economic development of the country.

Figure 4.9: Textile Export as a Percentage of Total Export

84%

82%

80%

78%

76%

74%

72%

70%
2007
2000

2001

2002

2003

2004

2005

2006

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017
Textile Export as a Percentage of Total Export

From the graph it is evident that textile export contributes to the major portion of total export
of Bangladesh. From the graph it is seen that textile export is more than 74% of total export
over the last 18 years. This percentage rate was highest with 82.01% in 2016. This percentage
of total export is seen to be increasing over the last few years, although decreased in 2017. As
the export of textile industry is increasing, the percentage is increasing. So, textile industry
should be given more emphasis. It will be helpful for our economic development.

30 | P a g e
4.7.3 Comparison between Growth Rate of GDP of Bangladesh and
Growth Rate of Revenue of Textile Industry: Revenue of textile industry is
growing year over year. GDP is also showing an increasing trend. The comparison between
growth of GDP and growth of textile revenue is given in the graph below.

Figure 4.10: Growth Rate of GDP and Textile Revenue

Growth Rate of Textile Revenue and GDP of

Bangladesh
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
2003

2012
2001

2002

2004

2005

2006

2007

2008

2009

2010

2011

2013

2014

2015

2016

2017
Growth Rate of Textile Revenue Growth Rate of GDP

From the graph it is seen that both the GDP and the revenue of textile industry is growing
over the years. Although the growth rate is higher for textile revenue, it has shown a
decreasing trend in few years. In 2005 the growth rate of textile revenue was less than the
growth rate of GDP. Again, in 2010 the growth rate of GDP has shown a decreasing trend
where the growth rate of revenue from textile industry has shown an increasing trend. So, it is
evident that the growth rate of textile revenue is higher than the growth rate of GDP. In 2017
the rates were much closer where the growth rate of textile revenue was 8.59% and growth
rate of GDP was 7.30%.

31 | P a g e
4.7.4 Market Capitalization of Textile Industry in Dhaka Stock Exchange

Market Capitalization of an industry in a stock exchange is measured by total amount of

share capital of that industry in that market. Although, textile industry is largest by the
number of companies, its market capitalization is not that much. Its market capitalization is
around 3% to 4% of total market capitalization of DSE. Market capitalization of textile
industry over the last five years is shown below.

Figure 4.11: Market Capitalization of Textile Industry in DSE (Tk. in million)

140000

120000

100000

80000

60000

40000

20000

0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

From the above chart, it is seen that the market capitalization of textile industry is fluctuating
over the years. The highest market capitalization was Tk. 125548.09 million in 2010. It has
decreased drastically in 2011. Again, increased up to the year 2013 and then decreased up to
the year 2015. Now the market capitalization is in increasing trend. In 2017 the market
capitalization of textile industry was Tk. 121713.26 million.

32 | P a g e
4.8 Market Share of Companies in the Textile Industry

Companies in the textile industry can be divided into four sub categories. These are textile,
spinning, denim and dyeing. Market share of the companies under these four categories are
discussed below in terms of total revenue for the year 2017.

4.8.1 Market Share of Textile Companies in Textile Industry

There are 14 companies in the textile category. These companies focus on the production of
textile apparels. Market share of these companies for the year 2017 are shown in the graph
below.

Figure 4.12: Market Share of Textile Companies

Market Share of Textile Companies

Others
13% Paramount Textile
Tosrifa 15%
6%
Zahintex
6% Stylecraft
14%
Familytex
6%
Hamid Fabrics
6% Saiham Cotton
14%
Simtex
6% Saiham Textile H. R. Textile
7% 7%

From the above pie chart it is seen that Paramount Textile Limited has the highest market
share of 15%. Saiham Cotton Mills Limited and Stylecraft Limited both have 14% market
share as their revenues are close. Other firms have market share of less than 10% each. Alhaj
Textile Mills limited has the lowest market share.

33 | P a g e
4.8.2 Market Share of Denim Companies in Textile Industry

There are 4 companies in the textile industry that are categorized as denim companies. These
companies deal with the production of denim apparels.

Figure 4.13: Market Share of Denim Companies

Market Share of Denim Companies

Argon Denims
Shasha Denims 19%
29%

Pacific Denims
12% Envoy Textiles
40%

It is seen that Envoy Textiles Limited shares the major portion of market of denim
companies. Its market share is 40%. Pacific Denims Limited has the lowest market share of
12% only. As the number of firms in this segment is low, there is low competition among
existing firms.

34 | P a g e
4.8.3 Market Share of Spinning Companies in Textile Industry

There are 18 spinning companies in the textile industry. These companies mainly focus on
spinning of yarn. These companies hold major portion of market share of the textile industry.
Market share of the companies under this category are shown below.

Figure 4.14: Market Share of Spinning Companies

Market Share of Spinning Companies

Delta Spinners
3%
Others Square Textiles
Mozaffar 17% 15%
Hossain
3% Maksons Spinning
Prime 12%
Textile
5% R.N. Spinning
Malek Spinning
10%
7%
Generation Next
Matin Spinning Fashions
9% Apex Spinning 10%
9%

From the pie chart it is seen that Square Textiles Limited has the highest market share of
15%. Maksons Spinning Mills Limited is in second position with a market share of
12%.Other firms share lowest portion of revenue. As Square Textile has foreign investment,
its market share is high. Others have market share of less than 10% each.

35 | P a g e
4.8.4 Market Share of Spinning Companies in Textile Industry

There are 10 dyeing companies in the textile industry. These companies focus on dyeing,
printing and washing of textile products. Market share of these companies are shown in the
chart. Modern Dyeing and Screen Printing Limited has no revenue in 2017. So, it is not
included in market share chart.

Figure 4.15: Market Share of Dyeing Companies

Market Share of Dyeing Companies

Others
13%
Far East Knitting &
Nurani Dyeing Dyeing
10% 29%

Hwa Well Textiles

10%

Shepherd Industries
Evince Textiles 23%
15%

We see that among the 9 companies Far East Knitting and Dyeing has highest market share of
29%. Shepherd Industries Limited is in second position with 23% market share. Other firms
have market share of 15% or less. So, the two companies are considered as market leader as
they shares more than 50% of total market share.

36 | P a g e
4.9 Future Prospects of Textile Industry in Bangladesh

From our analysis we have seen that textile industry significantly influence the economy of
Bangladesh with the highest export earnings. There is high demand for textile products of
Bangladesh in the international market. The demand is increasing with the increase in
population of the It is probable that the trend will be continued in the future.

As the cost of labor is low in Bangladesh, the foreign direct investment in the textile sector is
increasing. More and more foreign investors attracted to invest in the textile industry of
Bangladesh. Such investment is also influencing our economic development.

As the demand for textile products is increasing, firms should be aware of maintaining the
quality of such products. Otherwise it will be difficult for the companies to survive in the
international market. Thus, they should perform more research and development and make
more capital investment in this sector. Again, workers in this sector do not have much
technological knowledge. So, they should be given proper training about technologies used in
the factories. Government support is essential in such cases.

37 | P a g e
 Chapter- 5

Analysis and Findings

38 | P a g e
5.1 Descriptive Statistics

Descriptive statistics gives a summary of a given data set. It actually studies the basic features
of a data set or a sample. Descriptive statistics measures the central tendency of a population
or a sample by various parameters like mean, variance or standard deviation.

There are some differences between descriptive statistics and inferential statistics.
Descriptive statistics shows a simple view of a data set. On the other-hand, inferential
statistics tries to show the relations among the elements of a data set and draws conclusion
from those. It actually shows the dependence of one variable on other variable or variables.
Inferential statistics tries to give an idea of how accurately the sample represents the
population.

The descriptive statistics of the firms’ financial indicators are shown in Table 5.1.

Table 5.1: Descriptive Statistics of Firms’ Financial Indicators

Variable Measurement Mean Standard N

Unit Deviation
Total Assets Million Tk. 2130 2450 480
Equity Million Tk. 1230 1770 480
Long-term Debt Million Tk. 194 339 480
Total debt Million Tk. 517 628 480
Sales Million Tk. 1220 1170 480
EBIT Million Tk. 156 204 480
Operating Cash Flow Million Tk. 100 217 480
Investment in Property, Plant and Million Tk. 108 252 480
Equipment
Long-term Debt to Total Assets Ratio 0.14 0.16 480
Total Debt to Total Assets Ratio 0.31 0.23 480
Operating Cash Flow to Total Assets Ratio 0.06 0.08 480

It is seen that total asset has the largest mean and standard deviation among the financial
accounts. The reason is that the value of total asset is greater than other accounts. In ratio
category, total debt to total asset ratio has highest mean and standard deviation. As total debt
is large in value than operating cash flow or long term debt, the mean is highest.

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 Table 5.2: Descriptive Statistics of Firms’ Characteristics

Variable Measurement Mean Standard N

Unit Deviation
Board Size Number 6.74 1.74 480
No. of Independent Directors Number 1.06 1.01 480
No. of Board Meetings Number 7.88 3.76 366
No. of Government Nominee on the Number 0.57 0.98 480
Board
Government Shareholding Fraction 0.00002 0.00022 474
Institutional Shareholding Fraction 0.16700 0.12611 474
Sponsor Shareholding Fraction 0.46583 0.13173 474
Public Shareholding Fraction 0.36246 0.16848 474
Foreign Shareholding Fraction 0.00695 0.03456 472
Age Year 20.84 10.22 482

From the above table it is seen that, no. of board meetings has highest mean and standard
deviation among number units. As many companies hold more board meetings the mean and
standard deviation is high. Among the shareholding fractions, sponsor shareholding has
highest mean, although its standard deviation is lower than that of public shareholding. The
mean age of firms is 20.84 years and standard deviation of age is 10.22.

40 | P a g e
5.2 Average Capital Investment by Year

Table 5.3: Average Capital Investment by Year (Figures in Million Tk.)

Year Mean Median σ N

2000 24.7826 6.2254 34.3767 18
2001 32.1343 20.9212 36.0465 18
2002 35.7718 17.1973 63.3021 20
2003 19.8610 9.7136 28.4759 20
2004 35.0419 12.9739 41.3421 20
2005 62.5597 41.1945 79.0373 20
2006 43.5503 30.7517 44.2632 20
2007 38.6687 11.4917 67.0756 20
2008 35.6290 12.8110 54.6233 21
2009 41.2324 10.2522 53.3457 22
2010 56.6773 39.7331 57.7288 24
2011 65.2059 26.6757 89.3471 25
2012 106.8871 18.7412 197.8825 29
2013 203.3595 70.7866 348.5324 31
2014 160.0026 49.7475 290.0673 38
2015 200.1967 79.5925 420.4470 43
2016 173.2437 59.9910 273.1359 45
2017 211.6374 47.1249 433.7583 46

A graphical presentation of mean and median will be helpful to see whether these are
consistent over the period.

Figure 5.1: Mean and Median of Capital Investment over the Period

300

250
Million Taka

200

150

100

50

0
2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Mean Median

41 | P a g e
From the graph we see that mean capital investment is showing a consistency over the period.
It has not deviated much over the period. Again, median of the capital investment is also
showing a consistent trend over the period. Both mean and median was highest in 2013. Now
they are showing an increasing trend.

42 | P a g e
5.3 Analysis of Capital Investment by Companies

This analysis is performed to determine whether capital investment varies by size, ages,
operating cash flow, total asset turnover and operating cash flow to total asset ratio. Here, we
will observe whether the mean capital investment is same over the time.

5.3.1 Mean Capital Investment by Size Quartiles

Size is actually the total asset of a firm. Here, the mean capital investments of the companies
are shown in terms of total assets or size. At first the collected data are sorted yearly from
earliest to recent. Then, the companies are sorted by smallest to largest assets. Then, the
companies are divided into four quartiles in each year. Then the mean capital investment of
each quartile is calculated.

Table 5.4: Mean Capital Investment by Size Quartiles (Million Taka)

Year Size Quartiles

Q1 Q2 Q3 Q4
(Smallest) (Largest)
2000 1.18 24.32 13.72 52.98
2001 5.58 27.20 31.94 58.47
2002 7.37 16.02 32.07 87.63
2003 4.28 21.30 15.15 38.71
2004 13.40 1.84 74.51 50.42
2005 10.97 42.31 85.98 110.98
2006 31.23 13.13 39.79 90.06
2007 11.43 12.27 56.91 74.06
2008 8.82 4.62 27.06 103.73
2009 12.01 58.43 56.94 43.03
2010 4.32 58.88 70.45 93.06
2011 15.90 72.63 27.44 153.08
2012 8.96 51.93 88.13 281.21
2013 17.71 122.31 260.56 402.73
2014 41.54 37.62 126.29 451.90
2015 17.18 66.47 190.10 510.40
2016 16.01 75.62 104.71 502.87
2017 47.23 87.73 81.77 713.46

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Here, we see that the companies having the largest asset base are likely to invest more in
property, plant and equipment. To have a more clear view graphical presentation of the table
is given.

Figure 5.2: Mean Capital Investment by Size Quartiles in Textile Industry (2000-2017)

800
700
600
500
400
300
200
100 Q4 (Largest)
- Q3
2000
2001
2002

Q2
2003
2004
2005
2006
2007
2008
2009

Q1 (Smallest)
2010
2011
2012
2013
2014
2015
2016
2017

Q1 (Smallest) Q2 Q3 Q4 (Largest)
.

The above chart gives a clear view of the calculated results. Here, it is evident that third and
fourth quartiles are performing better than other quartiles. Although in 2011 second quartile
crossed third quartile. Again, in 2009 third and second quartiles showing more mean capital
investment than fourth quartile. So, it is seen that the firms with moderate to large asset base
are likely to have more capital investment than that of the firms with small capital base.

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5.3.2 Mean Capital Investment to Total Assets by Size Quartiles

Here, the ratio of capital investment to total asset is calculated and data are sorted by smallest
to largest asset. Then each year is divided into four quartiles and mean capital investment to
total asset is calculated for each quartile.

Table 5.5: Mean Capital Investment to Total Assets by Size Quartiles

Year Size Quartiles

Q1 Q2 Q3 Q4
(Lowest) (Highest)
2000 0.0091 0.0782 0.0309 0.0472
2001 0.0403 0.0930 0.0693 0.0465
2002 0.0462 0.0435 0.0616 0.0527
2003 0.0211 0.0522 0.0302 0.0212
2004 0.0559 0.0056 0.1317 0.0390
2005 0.0435 0.1064 0.1148 0.0886
2006 0.1343 0.0369 0.0510 0.0624
2007 0.0483 0.0329 0.0662 0.0307
2008 0.0275 0.0113 0.0272 0.0413
2009 0.0349 0.1077 0.0507 0.0169
2010 0.0142 0.0917 0.0437 0.0192
2011 0.1182 0.0720 0.0145 0.0270
2012 0.0475 0.0398 0.0269 0.0486
2013 0.0268 0.0774 0.0721 0.0620
2014 0.0563 0.0201 0.0373 0.0664
2015 0.0199 0.0384 0.0476 0.0645
2016 0.0219 0.0398 0.0255 0.0842
2017 0.0373 0.0302 0.0279 0.0729

The table is not giving a clear view of mean capital investment to total asset. So, a graphical
presentation is given below to have a better understanding.

45 | P a g e
 Figure 5.3: Mean Capital Investment to Total Assets by Size Quartiles in Textile
Industry (2000-2017)

0.16

0.14

0.12

0.10

0.08

0.06

0.04

0.02

0.00
2000

2014
2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2015

2016

2017
Q1 (Lowest) Q2 Q3 Q4 Highest)

From the above column chart it is seen that no asset quartile is seen to be consistent over the
period in terms of capital investment to total asset. It is seen that first quartile has performed
better than other quartiles in 2006 and 2011. In 2009 second quartile is showing better capital
investment to total asset. In recent years fourth quartile is seen to outperform other quartiles
in terms of the ratio. So, it can be said that firms having more assets have greater capital
investment to total asset ratio in recent years.

46 | P a g e
5.3.3 Mean Capital Investment by Age Quartiles

Age is measured as the difference between the year that is considered and the year of
commencement of the company. The companies are sorted year wise and again sorted age
wise from youngest to oldest. Then, the companies are categorized into four quartiles and
mean capital investment is calculated for each quartile.

Table 5.6: Mean Capital Investment by Age Quartiles (Million Taka)

Year Age Quartiles

Q1 Q2 Q3 Q4
(Youngest) (Oldest)
2000 21.99 57.77 24.31 1.56
2001 28.91 67.79 33.38 5.85
2002 30.80 76.99 26.82 8.47
2003 28.63 37.72 10.92 2.18
2004 29.88 36.12 52.81 21.37
2005 64.70 50.26 62.18 73.09
2006 23.19 45.99 43.00 62.02
2007 28.73 91.41 17.66 16.88
2008 39.46 59.26 21.01 25.71
2009 31.95 14.58 65.31 52.65
2010 78.74 64.27 35.79 47.90
2011 135.44 28.74 68.36 16.58
2012 298.99 94.79 18.31 28.11
2013 513.79 112.61 46.67 179.17
2014 318.11 173.68 76.72 63.19
2015 366.92 286.75 116.81 45.45
2016 253.32 266.86 137.22 28.30
2017 567.30 153.47 139.17 45.89

The above table is not giving a clear view whether oldest or youngest firms invest more in
capital. To have a clear idea of the mean capital invest by age quartile we should give a
graphical representation.

47 | P a g e
 Figure 5.4: Mean Capital Investment by Age Quartiles in Textile Industry (2000-2017)

600

500

400

300

200

100

-
2005
2000

2001

2002

2003

2004

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017
Q1 (Youngest) Q2 Q3 Q4 (Oldest)

From the graph it is seen that the first quartile is performing better than other quartiles in
recent years. That means the youngest companies are investing more in property, plant and
equipment. It is true in the sense that more investment is done in the earlier years after the
start of a business than that of in the later years. Before 2010, oldest companies are showing
to investment more than younger companies did.

48 | P a g e
5.3.4 Mean Capital Investment by Asset Turnover Quartiles

Asset turnover is calculated by dividing sales by total assets. Then, the data are sorted
according to years and asset turnover from lowest to highest. Then, like before the companies
are categorized into four quartiles where companies with lowest total asset turnover in the
first quartile and companies with highest turnover in the fourth quartile.

Table 5.7: Mean Capital Investment by Asset Turnover Quartiles (Million Taka)

Year Total Asset Turnover Quartiles

Q1 Q2 Q3 Q4
(Lowest) (Highest)
2000 48.45 20.31 9.80 22.30
2001 41.91 17.26 37.55 34.86
2002 84.12 16.01 20.72 22.24
2003 41.25 4.04 21.70 12.46
2004 49.34 28.85 28.16 33.82
2005 125.57 29.42 57.76 37.49
2006 69.56 20.82 48.59 35.23
2007 6.81 27.71 28.26 91.89
2008 34.83 30.11 14.56 58.45
2009 12.94 94.61 29.60 34.75
2010 97.52 27.90 78.59 22.70
2011 61.40 107.86 60.47 31.73
2012 267.30 65.68 78.82 19.77
2013 324.23 301.21 96.73 103.50
2014 412.70 39.52 96.21 110.47
2015 251.76 300.99 124.89 127.84
2016 255.15 155.99 115.43 158.96
2017 270.90 189.92 224.34 151.33

From the table we have a normal idea about capital investment based on asset turnover
quartiles. Here, it is seen that in recent year first and third quartiles are showing more
investment than second and fourth quartiles. If we look at the graph, a more clear idea can be
formed.

49 | P a g e
 Figure 5.5: Mean Capital Investment by Asset Turnover Quartiles in Textile Industry
(2000-2017)

450

400

350

300

250

200

150

100

50

0
2006
2000

2001

2002

2003

2004

2005

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017
Q1 (Lowest) Q2 Q3 Q4 (Highest)

From the column chart it is seen that first quartile and second quartile are showing more
capital investment. But, in 2007-2008 these two quartiles have shown less capital investment.
So, this is not giving a good idea whether firms with lowest or highest asset turnover are
having more capital investments. But, in most cases the firms with lowest asset turnover are
seen to make more capital investment than firms the firms with highest turnover does.

50 | P a g e
5.3.5 Mean Capital Investment by Operating Cash-flow Quartiles

Here, operating cash-flow is used to sort data. Firms with smallest operating cash-flows are
categorized in first quartile and firms with largest operating cash-flows are categorized in
fourth quartile. Then mean capital investments are calculated for each quartile. The men
capital investments are shown in the following table.

Table 5.8: Mean Capital Investment by Operating Cash-flow Quartiles (Million Taka)

Year Operating Cash-flow Quartiles

Q1 Q2 Q3 Q4
(Lowest) (Highest)
2000 8.36 19.62 42.30 25.76
2001 6.02 18.65 29.54 78.35
2002 17.62 28.97 22.40 74.09
2003 3.84 7.70 28.73 39.17
2004 27.21 29.87 37.83 45.26
2005 52.57 90.45 47.22 60.00
2006 30.27 23.88 64.10 55.96
2007 15.19 10.45 55.71 73.32
2008 15.85 17.81 12.56 100.92
2009 34.25 29.96 63.21 39.29
2010 87.08 40.25 63.70 35.68
2011 17.19 75.53 28.95 128.59
2012 157.76 58.38 81.28 127.23
2013 16.30 192.80 135.53 460.34
2014 43.63 55.73 136.34 419.87
2015 249.59 65.31 293.84 191.24
2016 68.78 53.31 226.86 339.16
2017 297.60 30.56 200.16 339.56

From the table it is seen that the firms with highest operating cash-flows makes more capital
investment than that of the companies with lowest operating cash-flows. The graphical
presentation of the table is given below.

51 | P a g e
 Figure 5.6: Mean Capital Investment by Operating Cash-flow Quartiles in Textile
Industry

500

400

300

200

100 Q4 (Highest)
Q3
-
Q2
2000
2001
2002
2003
2004
2005
2006
2007
2008

Q1 (Lowest)
2009
2010
2011
2012
2013
2014
2015
2016
2017
Q1 (Lowest) Q2 Q3 Q4 (Highest)

Here, the chart shows that quartile 4 is showing more capital investment than other quartiles.
It means the firms that have more operating cash-flows make more capital investment. But, in
2009-2010 third quartile is showing better results than fourth quartile. This gives us an idea
that the firms having highest to moderate operating cash flows make more investment. This is
true in the sense that operating cash-flows increases the capacity of the firms to make
investment.

52 | P a g e
5.3.6 Mean Capital Investment by Operating Cash-flow to Total Asset
Ratio Quartiles

To calculate operating cash-flow to total asset ratio, operating cash-flow is divided by total
asset. The ratio shows operating cash-flow as a portion of total asset. After calculating the
ratio, data are sorted according to years and then according to the ratio. Then the firms with
lowest operating cash-flow to total asset ratio are categorized in first quartile and firms with
highest ratio are categorized in fourth quartile. The mean capital investments by operating
cash-flow to total asset ratio are shown in the following table.

Table 5.9: Mean Capital Investment by Operating Cash-flow to Total Asset Ratio Quartiles
(Million Taka)

Year Operating Cash-flow to Total Asset Ratio Quartiles

Q1 Q2 Q3 Q4
(Lowest) (Highest)
2000 21.36 36.10 24.25 14.73
2001 5.97 47.36 31.23 38.56
2002 40.35 13.15 74.81 14.78
2003 7.26 7.06 37.06 28.06
2004 44.00 32.77 19.60 43.81
2005 117.13 46.67 33.47 52.97
2006 30.27 72.07 43.77 28.10
2007 15.19 12.23 90.41 36.84
2008 25.92 28.70 32.51 56.01
2009 34.59 33.07 34.14 60.58
2010 113.16 48.30 28.85 36.41
2011 28.93 137.20 34.04 65.85
2012 157.76 105.56 81.45 86.42
2013 191.39 154.72 145.10 314.95
2014 173.73 95.06 117.51 256.90
2015 249.59 286.83 138.48 118.46
2016 81.51 226.54 132.62 256.00
2017 313.99 118.08 202.19 212.42

The above table shows a confusing result. It is seen that in different year different quartile if
showing more capital investment than the others. For example, first quartile over-performed
other quartiles in 2005 and third quartile outperformed other quartiles in 2002. To have a
clear view about capital investments, the table is plotted on a graph. This is shown below.

53 | P a g e
Figure 5.7: Mean Capital Investment by Operating Cash-flow to Total Asset Ratio Quartiles in
Textile Industry

350

300

250

200

150

100

50

-
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Q1 (Lowest) Q2 Q3 Q4 (Highest)

From the graph it is evident that in fourth quartile mean capital investments are larger than in
other quartiles in most cases. It means that the firms with highest cash-flow to total asset ratio
make more capital investment than the firms with lowest such ratio. It is also consistent with
our previous one that is mean capital investment by operating cash-flow quartiles. As, the
firms have more operating cash-flows, the can invest more amount of money.

54 | P a g e
5.4 Regression Analysis

Objective of the study was to examine the relationship between operating cash flow and
capital investment by companies in textile industry. For the purpose of the study a regression
model has already been formulated. The regression equation is as follows:

lnppe = α + β1 ageit + β2 lntait + β3 tdebt_assetit + β4 tatoit + β5 instit + β6 publicit + β7

foreignit + β8 ocf_tait + β9 inddirit + β10 brdsizeit + β11 govtnomit + εit

Where,

lnppe= Natural logarithm of investment in property, plant and equipment

α= Intercept of the model

β= Coefficient of each variable

age= Indicator of learning effect

lnta= Natural logarithm of total assets

tdebt_asset= Measure of capital structure

tato= Asset utilization

inst= Fraction of institutional shareholding

public= Fraction of public shareholding

foreign= Fraction of foreign shareholding

ocf_ta= Operating cash flow to total asset ratio

inddir= No. of independent directors in the board of directors

brdsize= No. of members in the board of directors

govtnom= No. of government nominee in the board of directors

ε= Random error term

i= Name of the company

t= Time (year)

55 | P a g e
5.4.1 Correlation Matrix

Correlation matrix has been prepared to examine the possibility of multicollinearity problem among the independent variables. It occurs when
there is significant positive or negative correlation among independent variables. Correlation matrix shows the correlation coefficients between a
set of variables. Each variable in the matrix is correlated with the other variables in the matrix. The correlation of a variable with the same
variable is 1. From the matrix we can determine the variables that have highest or lowest correlation. The correlation matrix for the data set is
given below.

Table 5.10: Correlation Matrix

lnppe age tdebt_asset tato inst public foreign ocf_ta inddir brdsize govtnom lnta
lnppe 1.0000
age -0.3064 1.0000
tdebt_asset -0.1739 0.0357 1.0000
tato -0.0518 0.1004 -0.1289 1.0000
inst 0.1059 -0.1317 -0.0174 0.0106 1.0000
public -0.1694 0.1367 -0.0129 -0.0711 -0.6054 1.0000
foreign 0.0883 -0.0542 -0.0315 -0.0298 -0.0060 -0.0011 1.0000
ocf_ta 0.0363 0.0051 -0.1937 0.1710 -0.1170 0.0406 -0.0228 1.0000
inddir 0.1303 0.1664 -0.1559 -0.1040 -0.1942 0.1559 0.0426 -0.0572 1.0000
brdsize 0.2065 0.1079 0.0667 -0.1838 -0.0402 -0.0360 0.0334 -0.0824 0.2910 1.0000
govtnom -0.0272 0.0876 0.1148 -0.1650 0.2393 -0.0928 -0.0281 -0.1192 -0.0486 0.3250 1.0000
lnta 0.6226 -0.2033 -0.2045 -0.3609 0.0714 -0.0571 0.0822 -0.1523 0.2820 0.4387 0.1563 1.0000

56 | P a g e
From the table it is seen that there is multicollinearity problem in the model. There is a strong
negative correlation between public and institutional shareholding. This is because when
public shareholding percentage increases, institutional shareholding percentage decreases and
vice versa. So, institutional shareholding will not be included in the regression models. So,
the equation will be like the following:

lnppe = α + β1 ageit + β2 lntait + β3 tdebt_assetit + β4 tatoit + β5 publicit + β6 foreignit + β7

ocf_tait + β8 inddirit + β9 brdsizeit + β10 govtnomit + εit

5.4.2 Fixed-effects (within) Regression

In a fixed effects model the parameters are fixed or non random. The result of random effect
model is explained below.

Result of Fixed Effects (within) Regression

Table 5.11: Fixed-effects Regression Estimates on Investment in PPE

Coef. t p> │ t │
age -0.04369 -1.35 0.178
lnta 1.46644 5.60 0.000
tdebt_assets 0.25516 0.41 0.683
tato 0.01997 0.09 0.950
public -1.83298 -2.79 0.006
foreign 0.00341 0.85 0.394
ocf_ta 3.80785 3.56 0.000
inddir 0.01314 0.13 0.898
brdsize -0.08390 -0.95 0.340
govtnom -0.02969 -0.19 0.846
_cons -11.85348 -2.31 0.021
R-sq: Within = 0.1474 Number of obs = 440
Between = 0.7496
Number of groups = 47
Overall = 0.4544
F(11,383) = 6.62
Prob > F = 0.0000

From the table we see that total asset, operating cash flow to total asset and public ownership
are significant as the value of P>│t│ is less than 0.10. Total asset and operating cash flow to
total asset have positive impact on investment is property plant and equipment. So, if these

57 | P a g e
two variable increases, capital investment increases. Among the two variables operating cash
flow to total asset have more impact on capital investment as coefficient is higher. Public
ownership has negative impact on capital investment.

5.4.3 Random-effects GLS Regression

It is assumed in the random effects generalized least square regression model that the
differences across entities are assumed to be random or uncorrelated with the control
variables of the model. It is a special case of fixed effects model. As the work was related to
panel data, this model is used instead of ordinary least square model.

Result of Random Effects GLS Regression

Table 5.12: Random-effects GLS Regression Estimates on Investment in PPE

Coef. z p> │ z │
age -0.03561 -3.80 0.000
lnta 1.18963 13.54 0.000
tdebt_assets 0.25825 0.64 0.521
tato 0.53842 3.30 0.001
public -1.34731 -2.72 0.007
foreign 0.00314 0.84 0.403
ocf_ta 3.18353 3.14 0.002
inddir 0.02495 0.30 0.767
brdsize -0.02348 -0.40 0.693
govtnom -0.18494 -1.92 0.055
_cons -7.14454 -3.83 0.000
R-sq: Within = 0.1347 Number of obs = 440
Between = 0.7992 Number of groups = 47
Overall = 0.4866 Wald chi2(10) = 306.58
Prob. > chi2 = 0.0000

From the regression result in the above it is seen that age, total assets, total asset turnover,
public shareholding, operating cash flow to total asset and no. of government nominee on the
board are significant as the value of P>│z│ is less than 0.10. These variables have impact on
capital investment of textile firms. Changes in these variables causes changes in the firms’
capital investment

58 | P a g e
5.4.4 Hausman Test

Hausman test is used to select the appropriate model among fixed effects model and random
effects generalized least square model. In this test, null hypothesis, H0: Random effect model
is appropriate. And, alternative hypothesis, Ha: Fixed effect model is appropriate. The result
of Hausman test is given below.

Table 5.13: Estimates of Hausman Test

Coefficients
(b) (B) (b-B)
fixed random Difference
age -0.04369 -0.03561 -0.00808
lnta 1.46644 1.18963 0.27681
tdebt_asset 0.25516 0.25825 -0.00308
tato 0.01997 0.53842 -0.51845
public -1.83298 -1.34731 -0.48567
foreign 0.00341 0.00314 0.00027
ocf_ta 3.80785 3.18353 0.62432
inddir 0.01314 0.02495 -0.01182
brdsize -0.08390 -0.02348 -0.06042
govtnom -0.02969 -0.18494 0.15525
2
chi (10) = 10.16
Prob. chi2 = .4266

As the probability of chi2 is greater than 5% or 0.05, Random Effects Generalized Least
Square model is appropriate for the analysis. So, the results of random effects GLS model are
discussed in the next section.

59 | P a g e
5.4.5 Interpretation

We have seen that six variables are significant according to the result of random effects
generalized least square regression model. These are age, total assets, total assets turnover,
public shareholding, operating cash flow to total assets and no. of government nominee on
the board. The results are interpreted below.

Table 5.14: Interpretation of the Relationship between Capital Investment and

Significant Variables

Variables z Relation
age -3.80 Negative
lnta 13.54 Positive
tato 3.30 Positive
public -2.72 Negative
ocf_ta 3.14 Positive
govtnom -1.92 Negative

From the above table it is seen three variables have positive relationship with capital
investment and other three have negative relationship.

Companies with large asset base make more capital investment. As asset increases
investment in plant assets increases. It is evident that younger companies make more
investment in plant assets than older companies as the coefficient is negative. It is true in the
sense that companies make more investment is such assets at the earlier stage of their life.
Total asset turnover also impacts capital investment but not much like total asset.

The variable that affects capital investment most is operating cash flow to total asset ratio.
When the ratio is high or operating cash flow increases, investment in plant assets increases.

Public shareholding percentage and no. of government nominee is seen to affect capital
investment negatively. So, if public shareholding increases, the firm will have to give more
dividends which will reduce capital investment. No. of government nominee on the board of
director does not affect capital investment much as other variables does.

60 | P a g e
 Chapter- 6

Conclusions and Policy

Implications

61 | P a g e
The objective of the study was to analyze the capital investment by companies in the textile
industry and to determine the relationship between operating cash flow and capital
investment. From the analysis we have found some consistency among the results of
descriptive and inferential statistics which have made some points clear to us. It is seen that
the companies with large asset base makes more capital investment than the companies with
small asset base. If we consider the age of a company we see that younger companies invest
more in plant assets than older companies. It indicates that companies make more capital
investment at the earlier stage of their business. Again, it is seen that companies that generate
more operating cash flow, invest more in property, plant and equipment. It is true in the sense
that sufficient cash is required for making investment. Non financial variables like
shareholding percentages or information about board of directors are seen to have small
positive or negative impact on capital investment.

It is clear that operating cash flow influences the capital investment significantly, although
there is a small positive correlation among the ratio of operating cash flow to total asset and
capital investment. Firms should make more capital investments in plant asset to increase
their efficiency. It will give investors more investment opportunity as firms will require funds
to invest. Policy makers will be able to take rational decision if they would have better idea of
the impact of cash flow and other variables on capital investment. Portfolio managers also
will be able to select proper asset class as they make investments. Other related parties will
also get benefited. Moreover, if the firms increase capital investment their future performance
will be better.

62 | P a g e
References

Modigliani, F., & Miller, M. H. (1958). The cost of capital, corporation finance and the
theory of investment. The American Economic Review, 48(3), 261-297.

Jensen, M. C. (1986). Agency costs of free cash flow, corporate finance, and takeovers. The
American Economic Review, 76(2) 323-329.

Myers, S. C., & Majluf, N. S. (1984). Corporate financing and investment decisions when
firms have information that investors do not have. Journal of Financial Economics, 13(2),
187-221.

Devereux, M., & Schiantarelli, F. (1990). Investment, financial factors, and cash flow:
Evidence from UK panel data. Corporate Finance, and Investment 36(2) 279-306.

Vogt, S. (1994). The cash flow/investment relationship: Evidence from US manufacturing

firms. Financial Management, 23(2), 3-20.

Morck, R., Shleifer, A., & Vishny, R. W. (1988). Management ownership and market
valuation: An empirical analysis. Journal of Financial Economics, 20(3), 293-315.

Strong, J. S., & Meyer, J. R. (1990). Sustaining investment, discretionary investment and
valuation. Corporate Finance and Investment. 90(1), 127-148.

James A. Gentry, P. N. (1990). Profiles of cash flow components. Financial Analysts

Journal, vol. 46, no. 4, pp. 41-48.

Fazzari, S. M., Hubbard, R. G., & Petersen, B. C. (2000). Investment-cash flow sensitivities
are useful: A comment on Kaplan and Zingales. Quarterly Journal of Economics, 115(2)
695-705.

Moyen, N. (2004). Investment–cash flow sensitivities: Constrained versus unconstrained

firms. The Journal of Finance, 59(5), 2061-2092.

Pratap, S., & Rendon, S. (2003). Firm investment in imperfect capital markets: A structural
estimation. Review of Economic Dynamics, 6(3), 513-545.

Lyandres, E. (2007). Costly external financing, investment timing, and investment–cash flow
sensitivity. Journal of Corporate Finance, 13(5), 959-980.

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Appendix

Appendix A: Name and Year of Commencement of Selected Companies

Name of Companies Year of

Commencement
Alhaj Textile Mills Limited 1962
Altex Industries Limited 1990
Anlimayarn Dyeing Limited 1995
Apex Spinning and Knitting Mills Limited 1992
Argon Denims Limited 2006
CMC Kamal Textile Mills Limited 1995
C & A Textiles Limited 2010
The Dacca Dyeing & Manufacturing Company Limited 1963
Delta Spinners Limited 1979
Desh Garments Limited 1977
Dragon Sweater and Spinning Limited 1999
Dulamia Cotton Spinning Mills Limited 1987
Envoy Textiles Limited 2005
Evince Textiles Limited 1999
Familytex (BD) Limited 2003
Far East Knitting & Dyeing Industries Limited 1994
Generation Next Fashions Limited 2004
Hamid Fabrics Limited 1995
H. R. Textile Mills Limited 1984
Hwa Well Textiles (BD) Limited 2002
Maksons Spinning Mills Limited 2003
Malek Spinning Mills Limited 1989
Matin Spinning Mills Limited 2002
Metro Spinning Limited 1993
Mozaffar Hossain Spinning Mills Limited 2005
Mithun Knitting and Dyeing Limited 1991
Modern Dyeing & Screen Printing Limited 1981
Nurani Dyeing & Sweater Limited 2005
Pacific Denims Limited 2003
Prime Textile Spinning Mills Limited 1989
Paramount Textile Limited 2006
Rahim Textile Mills Limited 1981
Regent Textile Mills Limited 1994
R.N. Spinning Mills Limited 2004
Safko Spinning Mills Limited 1995
Saiham Cotton Mills Limited 2002
Saiham Textile Mills Limited 1982
Shasha Denims Limited 1996

64 | P a g e
 Shepherd Industries Limited 2000
Simtex Industries Limited 2007
Sonargaon Textiles Limited 1985
Square Textiles Limited 1994
Stylecraft Limited 1983
Tallu Spinning Mills Limited 1985
Tosrifa Industries Limited 2002
Tung Hai Knitting and Dyeing Limited 2004
Zaheen Spinning Limited 2007
Zahintex Industries Limited 2002

Appendix B: Value of DGEN, DSEX and DSE30 Indices

i. Value of DGEN Index

Year DGEN Index Value

2001 829.61
2002 848.41
2003 967.88
2004 1971.31
2005 1677.35
2006 1609.51
2007 3017.21
2008 2795.34
2009 4535.53
2010 8290.41
2011 5257.61
2012 4219.31

ii. Value of DSEX and DSE30 Indices

Year DSEX Index Value DSE30 Index Value

2013 4266.55 1466.25
2014 4864.96 1803.06
2015 4629.64 1750.59
2016 5036.05 1810.91
2017 6244.58 2283.23

65 | P a g e
Appendix C: Turnover and Market Capitalization of DSE

Year Turnover Market

(Tk. in Million) Capitalization
(Tk. in Million)
2008 667965.00 1043799.02
2009 1475301.00 1903228.05
2010 4009913.00 3508005.80
2011 1560912.09 2616730.54
2012 1001084.90 2403555.62
2013 952742.08 2647790.83
2014 1188531.54 3259246.76
2015 1031398.64 3159757.75
2016 1191571.27 3412441.49
2017 2169597.12 4228945.46

Appendix D: Sector Wise Market Capitalization of DSE (Tk. in Million)

Year Financial Manufacturing Service and

Sector Sector Miscellaneous
Sector
2008 453491.4 200206.6 159089.5
2009 646763.1 349406.0 530150.3
2010 1617252 680809.4 761812.8
2011 998401.8 498524.6 551600.3
2012 782403.2 464799.2 581204.8
2013 738878.4 694039.9 669882.6
2014 721663.9 1004233.0 962210.0
2015 672916.4 1105084.0 823799.5
2016 729611.8 1164034.0 955953.6
2017 1090959.0 1345044.0 1227557.0

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Appendix E: Market Capitalization of Textile Industry in DSE

Year Market Capitalization

of Textile Industry
(Tk. in million)
2008 15606.21
2009 42554.50
2010 125548.10
2011 56299.53
2012 65923.01
2013 90475.78
2014 90468.97
2015 85278.24
2016 104911.50
2017 121713.30

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