Determinants of Capital Structure with Reference to Select Indian Companies: A Panel Data Regression Analysis

This article mainly focuses on the analysis of determinants of capital structure of 50 Bombay Stock Exchange (BSE)-listed sample companies, choosing 5 sample companies from each of 10 industries, namely cement, computer hardware, large heavy engineering, fertiliser, fast-moving consumer goods (FMCG), large electric equipment, mining/mineral, textile, large tyres and pharmaceutical over 15 years’ time period ranging from 1999–2000 to 2013–2014, applying panel data regression technique. Our study has first made industry-wise empirical analysis of capital structure with respect to eight firm-specific determinants, viz. profitability, size, growth, tangibility, non-debt tax shield, liquidity, uniqueness and income variation. Subsequently, we have made a comparative analysis of selected determinants of capital structure across selected industries to determine their capital structure behaviour in view of three prominent capital structure theories, namely Pecking Order Theory, Trade-Off Theory and Agency Cost Theory. The regression analysis concludes that the Pecking Order Theory and the Trade-Off Theory mostly describe the observed relationship of independent factors with capital structure of the selected Indian industries. Profitability emerges as a significant determinant in devising the capital structure of the selected industries and reveals that greater proportion of profits is likely to raise the internal fund for financing future investment projects and, therefore, less dependent on external borrowings.