Vol 26, No 3; Article by Anshu Handoo and Kapil Sharma; September 2014
This paper reports on a study of the determinants of capital structure in Indian companies for the period 2001-2010. Research so far has focussed on the capital structure of developed economies, and research in the Indian context has been limited. The Indian financial market has been growing at an exponential rate despite encountering two recessions between 2001 and 2010, the study period. The paper utilizes a larger data set in comparison to earlier studies in India and examines additional factors. This study presents evidence on the determinants of capital structure with data from NSE listed companies, drawing on a sample size of 870 companies, in the study period 2001 - 2010. The objective of the paper is to identify the factors which help determine the capital structure of Indian companies using regression modelling. Ten independent variables and three dependent variables were tested using regression analysis. The empirical results imply that profitability, asset tangibility, size, tax rate, and debt servicing capacity have significant impact while raising short term debt; profitability, growth, asset tangibility, cost of debt, tax rate, and debt serving capacity have significant impact while raising long term debt; and profitability, growth, asset tangibility, size, tax rate, and debt serving capacity have significant impact while considering total debt while making capital structure decisions of Indian companies.
