Capital structure behavior with size of business– A case of Indian pharmaceutical industry

Financing decision by Indian corporate has been found as critical area for research in last two decade. The finance manager has to take decision regarding investment and financing for further growth by creating shareholder's wealth. Finance manager find himself in dilemma while using sources of finance i.e. equity or debt or what proportion of debt and equity should be used. Theoretical concept of optimum capital structure becomes difficult in practical use and controversial, any proportion of debt and equity which destroys shareholder wealth should be avoided. Earlier research in this area is not itself clear to support the theory and also failed to put an end to find out a uniform set of determinants of capital structure of a firm. Literature review shows regression model which found fit for one company is found not fit to use for its industry and also a model which found fit for one industry found not fit in using for other industry. In this paper attempt has been made to explore relation of capital structure behavior with the size of the business. This study has conducted on 88 BSE listed companies for a period of 2006 to 2011. As the business expands its asset structure, profitability, solvency, liquidity varies with changing size of business and its financing strategy too. So these 88 companies are reclassified in 7 categories on the basis of their size for further study. The study finds out that determinants of capital structure is different in all seven categories and hence proved that capital structure determinants differs on the basis of size of the business in Indian pharmaceutical companies.