Determinants of Capital Structure Decision: Some Evidence from Indian Cement Industry

Capital structure is closely linked with corporate performance. Corporate performance can be measured by variables like productivity and profitability which are based on capital structure of an organisation. The purpose of the present study is to analyse the financial data of 28 out of 36 listed public companies of Indian cement industry for the financial period 2004–05 to 2008–09 with a view to examine the impact of determinants such as Return on Capital, Return on Net Worth, Earning Per share, Operating Profit Margin and Net Profit Margin on Debt-Equity Ratio as well as Long – Term Debt Equity Ratio. The study finds that there is significant relationship between Debt-Equity Ratio and independent variables, but insignificant relationship between Long-Term Debt Equity Ratio and independent variables. It is also found that change in ROC, RONW, EPS, OPM and NPM leads to decrease in the Debt-equity ratio of the Indian Cement Industry. Similarly, change in ROC, RONW, EPS and NPM leads to decrease but change in OPM suggests increase in Long-Term Debt- Equity.