Leverage Decisions: A Case of Textile & Readymade Garments Industry of the Indian Corporate Sector

Authors

  • Gurnam Singh Rasoolpur Assistant Professor, P.G. Department of Commerce & Business Management, Guru Nanak College, Sukhchainana Sahib, Phagwara, Punjab, India
  • Dr. D.P. Warne Associate Professor, Department of Commerce,Chaudhary Devi Lal University,Sirsa

DOI:

https://doi.org/10.17722/ijrbt.v2i2.142

Keywords:

Conservative, Liberal, Aggressive, Capital Structure

Abstract

This empirical paper attempts to study the leverage decisions of Textile & readymade garments industry of the Indian corporate sector. The study is limited to top 19 firms from Textile & readymade garments 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 around half of the companies (47.29 percent) in this industry are in 0-100 percent capital structure range which means that these companies are using lesser amount of debt capital as compared to their own capital in their capital structure which is below the well-established standard range of 2:1 during the study period. It is found that one-third companies (33.50 percent) in this industry are in 100-200 percent capital structure range which means that these companies are using more amount of debt in their capital structure than their own capital but less than the well-established standard range of 200 percent (2:1) during the study period. Number of companies in this range is considerably more. It has been observed that around one-fifth companies (19.21 percent) in this industry are lying in more than 200 percent capital structure ranges during the study period. Such companies are using debt beyond the well-established standard range of 200 percent (2:1) during the study period. Number of companies in this range is considerably more. It is also observed that 5.42 percent companies in this industry are in 190 to 210 percent (1.90:1 to 2.10:1) capital structure ranges which are nearing to the well-established standard range of 200 percent (2:1) during the period under study. Thus, the study reveals that in this industry, around half of the companies are following low degree leverage, one-third of the companies are following moderate degree leverage and rest of the companies are following high degree leverage in their capital structure during the study period. Overall, Textile & readymade garments industry is following moderate approach of leverage in their capital structure during the study period.

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Published

2013-04-30