Composition of Capital Structure Decisions: Comparative Empirical Evidence from India

Abstract

This empirical paper attempts to study the composition of capital structure of Automobile & vehicles industry, Electronics & electrical products industry, Cement industry and Plastic, thermoplastic & rubber industry of the Indian corporate sector. The study is limited to top 79 (17 firms from Automobile & vehicles industry, 29 firms from Electronics & electrical products industry, 20 firms from Plastic, thermoplastic & rubber industry and 13 firms from Cement industry) out of top 500 manufacturing firms selected on the basis of the turnover for the year 2004-2005 which covers the time span of eleven years commencing from 1995-96 to 2005-06. The study reveals that the companies in Automobile & vehicles industry and Electronics & electrical products industry are following conservative approach, while, the companies in Cement industry and Plastic, thermoplastic & rubber industry are following liberal approach of financing through debt in the composition of their capital structure during the study period. It is also observed that companies in Automobile & vehicles industry are following more conservative approach as compared to the approach used by the companies in Electronics & electrical products industry, where, the companies in Cement industry are following more liberal approach as compared to the approach used by the companies in Plastic, thermoplastic & rubber industry of financing through debt in the composition of their capital structure during the period under study. However, debt capital is a cheaper source of finance, thus, the use of debt may maximize the value of wealth of shareholders.