Effect of Determinants of Capital Structure on Financial Leverage: A Study of Selected Indian Automobile Companies

Abstract

The objective of this paper is to investigate the relationship between financial leverage and determinants of capital structure of four top-most companies of Indian Automobile Industry. Selected companies for the study include Tata Motors Ltd, Mahindra and Mahindra Ltd, Maruti Suzuki India Ltd, and Hero MotoCorp Ltd. The determinants we have taken for the study include liquidity, size, profitability, growth rate, and tangibility. The data collected for the study are of 10 years from 2005-2014. Multiple regression analysis and correlation analysis are used as statistical tools in the present paper. The inter correlation matrix is formulated with reference to selected independent variables in order to detect the problem of multi-collinearity. There is an average support of explanatory variables or independent variables on dependent variable. The independent variables that are statistically significant in explaining the variation in dependent variable are profitability, growth rate, and liquidity at 5% level of significance. The results have been indicated by the calculated p values that are less than the .05 at 5% level of significance. The outcome may be useful for companies in their financing decisions.

Keywords: Capital Structure, Multi-collinearity, Profitability, Growth Rate, Liquidity

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