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IJSTR >> Volume 8 - Issue 7, July 2019 Edition



International Journal of Scientific & Technology Research  
International Journal of Scientific & Technology Research

Website: http://www.ijstr.org

ISSN 2277-8616



Capital Structure And Profitability Of Foreign Direct Investment Companies In The Indian Manufacturing Sector

[Full Text]

 

AUTHOR(S)

Rupali S. Ambadkar

 

KEYWORDS

Capital Structure, Profitability, Foreign Direct Investment, India, Debt-Equity, Return on Assets, Return on Equity, Manufacturing Sector

 

ABSTRACT

This study investigates the relationship between Capital Structure and Profitability of Foreign Direct Investment Companies in the Indian Manufacturing Sector India by employing firm level data (a sample of 54 Foreign Direct Investment companies from S&P BSE 500 Index) for a study period of 9 years from 2010 to 2018. Multiple Regression model has been employed for studying the impact of Capital Structure on Profitability. Three profitability measures are employed as indicators of profitability- ROA, ROE and ROTI. Four debt measures are employed to study the impact of capital structure on profitability- TOL/TNA, LTD/TNA, STD/TNA and Debt/Equity ratio. The control variables included in the study are Size, Growth, Liquidity, Tangibility and Age. Empirical results indicate that debt ratios have significant negative impact on profitability and confirm the prediction of Pecking-Order Theory. It is found out that that the sample companies have low debt levels in their capital structure. Short term debt funds are an important mode of financing adopted by sample Foreign Direct Investment companies. Liquidity has a positive and significant impact on ROTI but significant and negative impact on ROE. Tangibility has significant negative impact on ROE. Growth, Size and Age indicators has no significant impact on profitability. The study concludes that Capital structure does have a significant impact on profitability and the right choice of financing the assets may have an effect on the performance of Foreign Direct Investment companies in the Indian Manufacturing sector.

 

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