Determinants of capital structure: a panel regression analysis of Indian auto manufacturing companies

S. Santhosh Kumar () and C. Bindu ()
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S. Santhosh Kumar: Cochin University of Science and Technology
C. Bindu: Sree Narayana College

Journal of Social and Economic Development, 2021, vol. 23, issue 2, No 7, 338-356

Abstract: Abstract Capital Structure denotes the proportion of equities, preference share capital, long-term loans, debentures, retained earnings and other long-term sources of funds for business. The cost of these sources of funds, their tax advantages and legal implications are varied. The impact of these sources of funds on the value of the business is also different. Thus, the decision regarding the mix of different sources of funds in the capital structure is a challenging one for the practicing financial managers. The conventional theories of capital structure factored in some unrealistic assumptions to prove their propositions. But, in practice, there are a number of firm specific factors along with other quantifiable and non-quantifiable factors are influencing the capital structure decision of companies. This is an attempt to identify the firm specific factors influencing the capital structure decision of automobile manufacturing companies in India. The study employed panel regression analysis to identify the firm specific factors. Two variants of capital structure ratio such as Long-term Debt to Total Assets and Long-term Debt to Equity are tried in the panel data. It is found that firm size, profitability, tangibility, growth in assets and interest coverage are jointly influencing the capital structure decision of the auto companies.

Keywords: Capital structure; Automobile industry; Leverage; Panel regression; Debt-equity ratio (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/s40847-021-00159-9

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