Journal of Commerce and Accounting Research

Open Access Open Access  Restricted Access Subscription Access
Open Access Open Access Open Access  Restricted Access Restricted Access Subscription Access

Capital Structure Decisions: a Study on Leverage and Profitability of Infrastructure Companies in India


Affiliations
1 National Institute of Cooperative Management (NICM) Gandhinagar, Gujarat.
2 Sahibzada Ajit Singh Institute of Information Technology & Research, Mohali, Punjab.
     

   Subscribe/Renew Journal


Capital structure decisions are vital for the financial soundness of the company. Inappropriate decisions about the capital structure may lead to financial distress and eventually to bankruptcy. The top level finance executive sets the capital structure of their companies keeping in mind the objective of wealth maximization. However, they do choose different financial leverage levels in their effort to attain an optimal capital structure. The key to sustaining India's growth rate lies in developing India's infrastructure which has shown a tremendous potential in the recent times. Observing the growing scenario, the infrastructure companies are aiming at their best performance at all level starting from acquiring capital for their long-term and short-term projects to market expansion so that they can take utmost advantage of the industry's peak time. This paper shed some light on the analysis of capital structure of Infrastructure companies. An attempt has been made to analyze the various ratios like Debt Ratio, Debt-Equity Ratio, and Interest Coverage Ratio of Infrastructure companies which are related to capital structure. The main sectors covered under the infrastructure are Power, Gas, Construction, Cement, and Telecommunications for the purpose of analysis. Each sector is analyzed with the help of last five years financial data for leading five companies representing each sector.

Keywords

Capital Structure, Debt, Equity, Interest Type: Empirical
Subscription Login to verify subscription
User
Notifications
Font Size


  • Allen D. E., (1991), “The Determinants of the Capital Structure of Listed Australian Companies: The Financial Manager’s Perspective", Australian Journal of Management, Vol. 16, pp. 103-128.

  • Baker, M. J. (2002) “Market Timing and Capital Structure," Journal of Finance Vol.57, pp.1-32.

  • Chirinko, R. A. (2000) “Testing Static Trade-off Against Pecking Order Models of Capital Structure: A Critical comment." Journal of Financial Economics.

  • Frank, M. G. (2003) “Testing the Pecking Order Theory of Capital Structure." Journal of Financial Economics.

  • Garmaise, M. M. (2004) “Confronting Information Asymmetries: Evidence from Real Estate Markets." Review of Financial Studies.

  • Graham J(2000) “How big are the tax benefits of debt?" Journal of Finance, Vol. 55, pp. 1901-1941.

  • Graham, J. R.( 1988) “Corporate control contests and capital structure", Journal of Financial Economics, Vol. 20, pp. 55-86.

  • Graham, J. R., Harvey, C. R., (2002) “How do CFOs make capital budgeting and capital structure decisions, Journal of Applied Corporate Finance Vol.15, No.1, pp.8-23.

  • Janette R. (1988) “An international perspective on the capital structure puzzle, in Joel Stern and Donald Chew, Eds: New Developments in International Finance, (Basil Blackwell, New York, NY) Majluf, S. M.(1984) “Corporate financing and investment decisions when firms have information that investors do not have", Journal of Financial Economics, Vol. 13, pp. 187-224.

  • Mayer, C. S. (2004) “A New Test of Capital Structure." Centre for Economic Policy Research, Discussion Paper Series.

  • Milton H. (1991), “The theory of optimal capital structure", Journal of Finance, Vol 46, pp.187-221.

  • Mittoo, B. F.(2003) “The determinants of Capital Structure: A Survey of European Firms", working paper.

  • Modigliani, F. M. (1958) “The Cost of Capital, Corporation Finance and the Theory of Investment." American Economic Review Rajan, R. L., (1995) “What do we know about capital structure? Some evidence from international data", Journal of Finance Vol.50, pp.1421-1460.

  • S. Myers, “Determinants of corporate borrowing," Journal of Financial Economics, Vol. 5, 1977, pp. 147-175; and “The capital structure puzzle", Journal of Finance, Vol. 39, 1984, pp. 575-592.

  • S. Ross, “The determination of financial structure: the incentive signaling approach", Bell Journal of Economics Vol. 8, 1977, pp. 1-32.

  • Shyam-Sunder, L. M. (1999) “Testing Static Trade-off Against Pecking Order Models of Capital Structure." Journal of Financial Economics.

  • Shyam-Sunder, L. S. (1999) “Testing static tradeoff against pecking order models of capital structure", Journal of Financial Economics, Vol. 51, pp. 219-244.

  • Stephen R. A., (1977) “The determination of financial structure: the incentive signaling approach", Bell Journal of Economics Vol.8, pp.1-32.

  • Stewart M. (1977) “The determinants of corporate borrowing", Journal of Financial Economics, Vol.5, pp.147-175.


Abstract Views: 444

PDF Views: 2




  • Capital Structure Decisions: a Study on Leverage and Profitability of Infrastructure Companies in India

Abstract Views: 444  |  PDF Views: 2

Authors

Narayan Baser
National Institute of Cooperative Management (NICM) Gandhinagar, Gujarat.
Mamta Brahmbhatt
National Institute of Cooperative Management (NICM) Gandhinagar, Gujarat.
Bateshwar Singh
Sahibzada Ajit Singh Institute of Information Technology & Research, Mohali, Punjab.

Abstract


Capital structure decisions are vital for the financial soundness of the company. Inappropriate decisions about the capital structure may lead to financial distress and eventually to bankruptcy. The top level finance executive sets the capital structure of their companies keeping in mind the objective of wealth maximization. However, they do choose different financial leverage levels in their effort to attain an optimal capital structure. The key to sustaining India's growth rate lies in developing India's infrastructure which has shown a tremendous potential in the recent times. Observing the growing scenario, the infrastructure companies are aiming at their best performance at all level starting from acquiring capital for their long-term and short-term projects to market expansion so that they can take utmost advantage of the industry's peak time. This paper shed some light on the analysis of capital structure of Infrastructure companies. An attempt has been made to analyze the various ratios like Debt Ratio, Debt-Equity Ratio, and Interest Coverage Ratio of Infrastructure companies which are related to capital structure. The main sectors covered under the infrastructure are Power, Gas, Construction, Cement, and Telecommunications for the purpose of analysis. Each sector is analyzed with the help of last five years financial data for leading five companies representing each sector.

Keywords


Capital Structure, Debt, Equity, Interest Type: Empirical

References