An Empirical Investigation into the Determinants of Capital Structure of Hindustan Newsprint Limited

Abstract

The financing decision of the firm i.e. deciding of the proportions of debt and equity is one of the basic decisions oriented to the achievement of the maximization of the shareholders wealth. And therefore, the corporate are forced to have a clear vision on whether to go for equity or debt. Even if the firm decides to choose debt form of financing, they need to have a clear vision on the factors that contribute to the choice of debt and how to go about the forms of debt. Hence, determination of optimum debt level and its impact on the firms overall capital structure is regarded as an integral part of the financial decisions. Against this backdrop, the study of the determinants of capital structure of the Indian firms assumes significance. Thus, in this study, capital structure mix and its determinants are analyzed by using multiple linear regression models to find the relationship among the determinants of capital structure of Hindustan Newsprint Limited, one of the leading public sector paper companies in India. The overall analysis of determinants of capital structure reveals that corporate size, growth rate, Debt-service capacity and non-debt tax shields had a positive and statistically significant relationship with the capital structure of the Hindustan Newsprint Limited during the study period. Among the selected variables asset tangibility, profitability, liquidity and business risk found negative relationship with the capital structure decisions of majority of the selected companies during the period under investigation.