Financing Behaviour of Cement Manufacturing Firms in India

Capital is the major part of all kinds of business activities, which are decided by the Firm Size, and nature of the business concern. If the company maintains proper and adequate level of capital, it will earn high profit and it can provide more dividends to its shareholders. Several researches have been found on identifying the determinants of capital structure but most of them are of foreign countries and there is no single opinion on the actual determinants of capital structure. Indian Cement Manufacturing Industry is the second largest producer in the world. The prospective growth of the Cement Manufacturing Companies requires them to maintain strong capital base and sound capital structure to fund its long-term investment structure. This study is an attempt to analyze the financing behaviour of the selected Cement Manufacturing Companies operating in India, and thereby identify the major determinants of capital structure decisions for these companies. In order to examine the validity of the capital structure theories, for Indian Cement Manufacturing Sector, an attempt has been made to evaluate the impact of explanatory variables viz. Firm Size, Growth, Profitability, Liquidity and Tangibility on Debt Equity Ratio as the Dependent Variable. The independent variables have been considered keeping in view Agency Theory, Trade Off Theory, Pecking Order Hypothesis and other established capital structure models. The study indicates thatall the selected companies rely upon different approaches for deciding their capital structure decisions. Profitability, Liquidity and Firm Size are found to be the major determinants of capital structure for almost all the selected companies.