ABSTRACT
Capital structure can put pressure on firms to change their level of competitive intensity in an industry. The availability of debt and equity finance may have a significant effect on competitive strategies of the firm such as differentiation and cost leadership. This study contends that financial policies can create bargaining pressure on firms to either dampen competitive rivalry or increase the threat of new entrants. This study is the first to investigate the role of capital structure on firms’ competitive strategies in Bangladesh. It examines the role of capital structure on the link between competitive strategies and financial performance of firms in the tourism destination of Bangladesh. The study also examines the nexus between differentiation strategy and capital structure, and the relation between cost leadership strategy and capital structure. The study employs panel regression estimation technique to analyse the sample data of 85 listed firms in Bangladesh for the period 2007–2018. Findings of the study reveal that capital structure favours cost leadership strategy over differentiation strategy. The moderating effects of capital structure show that the relationship between cost leadership and financial performance is stronger when firms use long-term debt and short-term debt while the link between differentiation strategy and financial performance is stronger when firms use total debt and equity finance. This study provides a new model on sustaining competitive strategy through capital structure theoretically and for tourism policymakers.
