Capital Structure Determinants - An Empirical Analysis of Pharmaceutical Companies in NIFTY

Abstract

Capital structure of the firm is decided by various factors, and its decisions are crucial for every business organization as maximization of firm value is a difficult process that requires a balanced mix of debt and equity, taking into consideration the costs and benefits related with these securities. Capital structure helps in ensuring that the organizations operations are sustainable, even though the factors that contribute to the performance of an organization are large in number, still capital structure determinants play an important role. It is therefore necessary to take into account the factors that put up the capital structure mix in its operations. Therefore, present study aims to explore the factors that impact the capital structure pharmaceutical companies in NIFTY. Using multiple regression analysis, the leverage behavior of pharmaceutical companies in NIFTY was examined for the period of ten years starting from 2011 to 2020. The variables used are short-term debt, long-term debt and total debt and are dependent, and Profitability, size, growth, tangibility, business risk, NDTS and liquidity are taken as independent variables. The results suggest that variables like profitability, firm-size, growth rate and liquidity are key determinants of capital structure and short-term debt is found to be an important financing source of Indian pharmaceutical companies.