An insight into the determinants of capital structure of the chemical industry in India: An empirical analysis

Decision on capital structure formulation or long term finance is influenced by multiple factors that are crucial for the financial wellbeing of the firm at the present situation. The current study employed eight such influencing factors to identify the influence on leverage of the Chemical industry in India in the light of three important capital structure theories, namely Pecking order, Trade-off and Agency cost theory. Data consisting of top ten firms of the said industry are selected on the basis of turnover and availability of 12 years balanced panel data set, running from financial year 2000–01 to 2011–12. Hence, random effect model is selected as best method through some statistical tests to analyze the regression equation. The observation reveals that profitability, size, income variation and liquidity are the most influencing factors in explaining the leverage and also provides that majority of the factors are consistent with the pecking order theory and small evidence to support either trade-off theory or agency cost theory to some extent.