Corporate Financing Pattern and Capital Structure Analysis of Leading Automobile Companies in India: A Panel Data Regression

Abstract

Recently many Indian firms have faced bankruptcy issues due to the over reliance on debt or due to improper capital structure decisions. The fact that auto industry is cyclical in nature and highly capital intensive (which requires large financial commitments), an important measure for evaluating auto companies would be the capital structure analysis. The central theme in capital structure is whether an optimal or at least a target capital structure exists. Thus the present study examines the financing pattern by analysing mean, coefficient of variance, and CAGR of every component of capital structure. Further, panel data regression has been used to empirically investigate the impact of components of capital structure on D/E ratio of 10 sample units for 11 years 2003-04 to 20013-14. The findings of the study were consistent with the previous literature that majority of firms in India follow pecking order approach. The ANOVA results suggest that there is a significant difference in the components of capital structure. The panel data regression results show that borrowings have a positive and significant effect on D/E ratio while reserves and surplus have a negative and significant effect on D/E ratio. Total capital did not have any impact on D/E ratio.

Keywords: Capital Structure, Leverage, Components, Automobile Industry, Debt Equity Ratio

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