Financial Leverage and its Determinants:Evidence from Indian Cement Industry

In this study an attempt has been made to examine the determinants of capital structure in companies belonging to the Cement Industry of India. The companies listed in the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) has been used for the study. The study has been conducted for the period from 1999-2000 to 2010-2011. To study the influence of various independent variables on the capital structure, Multiple Regression Analysis has been carried out taking the "ratio of average total debt to average total assets" as dependent variable and seven variables, which might have some impact on the capital structure, as independent variables. These seven variables are namely "business risk", "size of the firm", "growth rate", "debt service capacity", "degree of operating leverage", "dividend payout", and "earning rate". It is observed from the study that size of the firm, debt service capacity, business risk and growth rate are statistically significant to have an influence in taking capital structure related decisions and considered as determinants of capital structure of the listed companies belonging to the Indian Cement Industry during the period under study.