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

A Study on the Factors Influencing the Leverage of Indian Companies


Affiliations
1 Rajagiri College of Social Sciences, Cochin., India
2 Rajagiri Business School, Cochin., India
     

   Subscribe/Renew Journal


The amount of leverage in the firm's capital structure-the mix of long term debt and equity maintained by the firm-can significantly affect its value by affecting return and risk. Unlike some causes of risk, management has reasonable control over the risk introduced through the use of leverage. Poor capital structure decisions can result in higher expected cost of capital, thereby lowering the net present values of the projects. Capital structure is determined by several financial and non financial factors of a firm. Previous researchers have listed the factors which will influence the leverage decisions. This study examines the influence of growth, profitability, liquidity and dividend policy of a firm on its leverage. The study was conducted by taking 40 Indian companies from four industrial sectors. It was found that all the four independent variables have impact on the capital structure of firms in different industries. The regression analysis revealed that profitability and liquidity are the two major factors which have significant influence on the debt equity ratio of Indian companies.

Keywords

Financial Leverage, Growth, Profitability, Liquidity, Dividend Payout And Operating Spread
Subscription Login to verify subscription
User
Notifications
Font Size


  • Al-Najjar, B. (2011). The Inter-Relationship between Capital Structure and Dividend Policy: Empirical Evidence from Jordanian Data. International Review of Applied Economics, 25(2), pp. 209-224.

  • Bhat, R. K. (1980). Determinants of Financial Leverage: Some Further Evidence. Determinants of Financial Leverage : Some Further Evidence, 29(6), pp. 451-56.

  • Baral, K. J. (2004). Determinants of Capital Structure: A Case Study of Listed Companies of Nepal. The Journal of Nepalese Business Studies, 1(1), pp. 1-13.

  • Chakraborty, S. K. (1977). Corporate Capital Structure and Cost of Capital a Preliminary Study of the Indian Private Sector. Institute of Cost and Works Accountants of India.

  • Durand, D. (1959). Cost of Debt and Equity Funds for Business: Trends and Problems of Measurement, In E. Solomon (Ed.). The Management of Corporate Capital, pp. 91-16.

  • Jensen, M. C. & Meckling, W. H. (1976). Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure. Jorunal of Finance, 3(4), pp. 305-360.

  • Kim, W. & Sorensen, E. (1986). Evidence on the Impact of the Agency Costs of Debt on Corporate Debt Policy. Journal of Financial and Quantitative Analysis, 21(2), pp. 131-144.

  • Miller, M. (1977). Debt and Taxes. Journal of Finance, 32(2), pp. 261-275.

  • Milton, H. & Raviv. A. (1991). The Theory of Capital Structure. Journal of Finance, 46, pp. 297-355.

  • Modigliani, H. & Miller, M. H. (1958). The Cost of Capital, Corporation Finance and the Theory of Investment. American Economic Review, pp. 261-97.

  • Myers, S. C. (1984). The Capital Structure Puzzle. Journal of Finance, 39, pp. 575-592.

  • Panigrahi, A. K. (2010). Capital Structure of Indian Corporate: Changing Trends. Asian Journal of Management Research, 1(1), pp. 283.

  • Penman, S. (2001). Financial Statement Analysis and Security Valuation. Columbia University Business School: Mcgraw-Hill.

  • Sinha, S. (1992). Inter-Industry Variation in Capital Structure in India. Indian Journal of Finance and Research, 2(2), pp. 13-26.


Abstract Views: 617

PDF Views: 0




  • A Study on the Factors Influencing the Leverage of Indian Companies

Abstract Views: 617  |  PDF Views: 0

Authors

Rakesh Krishnan
Rajagiri College of Social Sciences, Cochin., India
Neethu Mohandas
Rajagiri Business School, Cochin., India

Abstract


The amount of leverage in the firm's capital structure-the mix of long term debt and equity maintained by the firm-can significantly affect its value by affecting return and risk. Unlike some causes of risk, management has reasonable control over the risk introduced through the use of leverage. Poor capital structure decisions can result in higher expected cost of capital, thereby lowering the net present values of the projects. Capital structure is determined by several financial and non financial factors of a firm. Previous researchers have listed the factors which will influence the leverage decisions. This study examines the influence of growth, profitability, liquidity and dividend policy of a firm on its leverage. The study was conducted by taking 40 Indian companies from four industrial sectors. It was found that all the four independent variables have impact on the capital structure of firms in different industries. The regression analysis revealed that profitability and liquidity are the two major factors which have significant influence on the debt equity ratio of Indian companies.

Keywords


Financial Leverage, Growth, Profitability, Liquidity, Dividend Payout And Operating Spread

References