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Sky
Journal of Business
Administration and
Management
Vol. 3(6), pp. 063-069,
November, 2015.
Available online,
http://www.skyjournals.org/SJBAM Full Length Research Paper Determinants of capital structure in the Indian sugar sector
April Bhattacharjee and Mihir Dash*
Alliance School of Business, Alliance University, Bangalore, India.
*Corresponding author. E-mail: mihirda@rediffmail.com .Accepted 7 September, 2015
Abstract
Capital structure is one
of the most important
decisions in financial
management. The primary
objective of the firm is
to maximize
shareholders’ wealth by
an appropriate mix of
the main sources of
finance, including
retained earnings,
ordinary shares,
preference shares, and
debt. The primary
objective of the study
was to identify the key
determinants of capital
structure in the Indian
sugar sector. The data
for the study was
collected from the
financial statements for
a sample of twenty-five
companies in the Indian
sugar sector for the
period 2003-11 from the
Capitaline database. The
analysis was performed
using pooled regression
(OLS), and panel
regression (GLS
fixed-effects and
random-effects)
modeling. The latter
approach is a
contribution to the
capital structure
literature, viz.
comparing the results of
pooled and panel
regressions in order to
overcome the limitations
pooled regression
methodology, and to
examine the role of
firm-specific factors in
capital structure
decisions. The results
of the study suggest
that financial leverage
is significantly
positively related with
collateralizable value
of assets, and
significantly negatively
related with
profitability. Thus, in
a highly
capital-intensive
industry as the sugar
industry, companies
prioritise their sources
of financing, preferring
internal funds, followed
by debt, and finally
equity issues, as
sources of finance.
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