The Determinants of Leverage of the Listed-Textile Companies in India

Abstract

This study examines the determinants of leverage of Indian textile firms using panel data analysis. The sample of the study covers 170 Indian textile companies listed on the Bombay Stock Exchange covering the period from 2006 to 2010. Fixed effects regression model was used for the analysis of penal data of sample companies. Firm size, growth in total assets, non-debt tax shields, profitability and asset tangibility are used as explanatory variables, while leverage ratio is the dependent variable in the model. The results show that the variables of size, non-debt tax shields, and tangibility have highly significant positive relationship with the leverage ratio (p<0.01), while on the contrary, growth and profitability have highly significant negative relationship with debt ratio (p<0.01). The results are generally consistent with theoretical predictions as well as previous research papers. This paper adds to the existing literature on the relationship between the firm specific factors and leverage

Keywords: leverage, capital structure, firm-specific factors, textile industry, penal data