Critical Factors of Borrowing in Food Processing Industry of India

Financial performance of a firm is a function of its financing sources which are affected by firm-specific as well as market-specific factors. Though substantial literature is available on capital structure, there are very few studies which have concentrated on Indian food processing industry. The research paper investigates the factors affecting the financing choice of a company considering its relative size and market share. On the basis of literature review, eight important factors are identified and their impact on the long-term and short-term borrowings have been tested using multiple regression model on balanced panel data of 40 firms for 5 years (2014 – 2018). The study concludes that tangibility, liquidity, growth opportunities and operating cash flows are major determinants of long-term and short-term liability. The paper has also found that small firms primarily borrow more with high profit whereas medium and large firms prefer equity and retained earnings as profits increases.