Determinants of Financial Leverage in Indian Corporate Sector

Abstract

newline Capital structure is a concept defining the way a company finances its total assets using two main capital sources: debt and equity. The proportion of debt and equity in the capital structure is the most important decision to be taken by the company because the decision affects the risk and return of share holders, which in turn affects the credibility of the company. Use of debt capital in the capital structure is termed as financial leverage. The corporate capital structure remains a conflicting issue in modern corporate finance. In addition, the decision on the capital structure not only influences the wealth of shareholders but also affects the market value of the share. The main objective of the study is to examine the determinants of financial leverage in Indian corporate sector. This study has been oriented towards examining the factors determining the Financial Leverage and the interrelationship between Cost of Capital and Financial leverage and because of this, the sample firms have been taken from the companies listed at Bombay Stock Exchange (BSE). The sample companies have been taken from major industries of Indian corporate sector which are Auto Ancillary, Automobile, Engineering-Construction, Cement, Ceramics/Granites, Fertilizers, Pesticides, Electrical Equipment, Electronics, Computers-Software, Textiles, Plastics, Paper ,Sugar ,and Pharmaceuticals. The study has used 10companies from each of the mentioned industries. The present study shields a time period of ten years starting from2010-1Ito 2019-20 for analyzing the different factors that affect the capital structure. The present study considers various important independent variables which influence the capital structure of the corporate sector. This study will help the investors in selecting their portfolio in such a way as to fulfil their objectives and the corporate world to consider the factors which are relevant for the debt equity policy. The study would also be helpful for academicians and researchers to answer the related