FACTORS AFFECTING CAPITAL STRUCTURE DECISIONS: A STUDY OF S&P CNX NIFTY 50

Abstract

Capital Structure is referred to as the ratio of different kinds of securities raised by a firm as long-term finance. Financing and investment are two major decision areas in a firm. In the financing decision the manager is concerned with determining the best financing mix or capital structure for his firm. The study has two objectives 1) To determine whether or not factors affecting capital structure decision significantly vary amongst the sample companies of different sector.2)To identify most significant factors considered by sample companies for design of capital structure. There are 3 dependent variables used to measure Capital Structure i.e Debt-Equity ratio, Debt-Long Term Funds and Degree of Financial Leverage. 9 Independent variables are used in this study. Those are Size, Growth in terms of assets, and Growth in terms of sales, Interest Coverage, PE ratio, Profitability, Cash Flow Coverage, Dividend Payout Ratio and Tax Shield. The research is based on secondary data only. In this research it is two stage processes. In the first stage five industries are considered ie IT, Cement, Automobile, Pharmacy, Oil, Power and energy and in the second stage companies from each industry would be selected from the firms listed in Nifty 50.So in total 35 companies have been used from 5 sectors. The data is collected from National stock Exchange directory, CMIE prowess.