Determinants of Capital Structure: Evidence from Indian Stock Market with Special Reference to Capital Goods, FMCG, Infrastructure and IT sector

Abstract

The current study aims to examine the relationship between various identified determinants (Profitability, Tangibility, Growth Rate, Business Risk, Size and Non Debt tax shield) and its impact on financial leverage (CS) decisions of Capital goods, FMCG, Infrastructure and IT sector in Indian Stock market. In order to realise the stated objectives of the study the researchers have collected data from the published financial statements of quoted firms in the Indian stock market from the above mentioned sectors for a period of ten years (2006-2015). In the very first step,we tested the data by using multico1tinearity test and then we use linear multiple regression model to investigate the impact of chosen independent variables on CS (leverage) decisions in Indian capital market. Later, residual diagnostic CS, such as Serial correlation test, Heteroskedasticity Test, Normality and CUSUM test have been run to assess the strength of the constructed regression model. The results show that ER (Earnings), TA (Tangibility) and GR (Growth) were the major determinants in case of capital goods sector and ER (Earnings), TA (Tangibility), GR (Growth), Size and NDTS were the major factors for the FMCG sector. GR (Growth), BR (Business Risk) and Size for the Infrastructure sectors and ER (Earnings), BR (Business Risk) and Size were the major factors for the IT sector. The study revealed inconsistency in independent variables influencing the financial leverage component, though there is statistical support for the proposed determinants with respect to earnings and growth rate influencing the financial leverage.

Moderating Effect of Firm Size on Capital Structure Determinants: Evidence From Indian Food Processing Industry

“…Long-term debts are usually secured by pledging fixed assets with banks because of large amount and longer repayment period. Higher proportion of fixed assest (termed as Tangibility) facilitates debt raising for companies (M'ng, Rahman & Sannacy, 2017;Sathyanarayana et al, 2017;Yousef, 2019). On the contrary, ACT (Ross, 1977) supports negative relationship between tangibility and debt ratio.…”

“…Opportunities of growth Abor (2007) proposed that growing firms require capital to finance large scale operations. Besides, growing firms prefers debt as compared to equity to avail favorable financial leverage hence growth has positive impact on debt ratio (Rani et al, 2016;Sathyanarayana et al, 2017;Mayuri & Kengatharan, 2019). On the contrary, TOT and ACT proposed negative relation between growth and debt financing as growing firms are more exposed to losses in case of financial distress (Yousef, 2019) due to their instable earnings (Bauer, 2004).…”

“…Secondly, to control autocorrelation, Durbin-Watson (D-W) statistic has been calculated and the computed values (refer table 5 & 7) are within the allowable limits of 0 to 2 (Gujarati, 2003;Gujarati & Sangeetha, 2007). Third, to obtain reliable results from t-test (significance of regressors) and F-test (model fit) of regression, Breusch-Pagan-Godfrey (BPG) test of homoscedasticity (Sathyanarayana et al, 2017) has been applied. Result of BPG test (refer table 5 & 7) show that p-value is more than 0.05 showing absence of heteroskedasticity.…”

“…An abridged view of CS theories has been presented in figure 1. Besides theatrical contributions, ample of empirical inquiries have been conducted on determinants of CS but results are inconclusive (Bhaduri, 2002;Rani, Narain & Dhawan, 2016;Sathyanarayana, Harish & Kumar, 2017;Iqbal, Ahmad & Ali, 2019;Vintila, Gherghina & Toader, 2019). Such indecisive research findings require further empirical evidence to support the theatrical underpinnings.…”

Pengaruh Profitabilitas, Pertumbuhan Penjualan Dan Struktur Aktiva Terhadap Struktur Modal

“…Penambahan utang ini dapat dipandang sebagai meningkatnya kepercayaan masyarakat khususnya investor terhadap perusahaan, meskipun konsekuensi dari penambahan utang adalah peningkatan risiko bagi perusahaan, namun investor percaya bahwa manajemen akan mampu mengelola utang tersebut dengan baik, sehingga dampak penggunaan utang atau peningkatan risiko tidak membawa efek negatif bagi perusahaan. Hasil ini sejalan dengan penelitian yang dilakukan oleh Farisa dan Widati (2017), Yunianto (2017), Sathyanarayana et al (2017), Zulvia dan Linda (2019). Namun hasil penelitian yang dilakukan oleh Lina dan Amir (2018), Dewiningrat dan Mustanda (2018) menunjukkan bahwa tingkat pertumbuhan penjualan berpengaruh negatif dan signifikan terhadap struktur modal, karena perusahaan dengan pertumbuhan penjualan yang tinggi memilih untuk menggunakan lebih banyak ekuitas dan utang yang relaitf kecil untuk membiayai peluang investasi baru.…”