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Determinants of Capital Structure : An Exclusive Study of Passenger Car Companies in India
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Capital structure decision is one of the core financial decisions in a firm. Theoretically, composition of capital structure has a significant stake in determining the earnings available to equity holders and thereby, the market value of a firm. If it is so, a better understanding about the determinants of capital structure is inevitable to manage the decisions of a firm. This study attempted to identify the determinants of capital structure of passenger cars companies listed on the Bombay Stock Exchange (BSE) of India. The long-term debt to total capital ratio was considered as the dependent variable representing the capital structure. The determinants of capital structure which were considered as the independent variables are : (a) size of the firm, (b) profitability, (c) tangibility, (d) growth in assets, (e) non-debt tax shield, (f) debt service capacity, and (g) dividend payout ratio. A panel regression was run to identify the determinants by following a logical procedure for establishing the relationship. Though the independent variables were sensibly and carefully chosen from the existing literature, none of these determinants were found to have a statistically significant relationship with capital structure in the case of passenger car companies in India. However, the overall F - statistics confirmed that the specified model with the above explanatory variables had more predictability power and could explain more than what the intercept only model could explain.
Keywords
Capital Structure, Leverage, Determinants of Capital Structure, Debt-Equity Ratio
G3, G30, G32
Paper Submission Date : February 9, 2018 ; Paper sent back for Revision : April 21, 2018 ; Paper Acceptance Date : April 26, 2018.
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