A RESEARCH PAPER CAPITAL STRUCTURE DETERMINANTS OF STEEL COMPANIES IN INDIA: A PANEL DATA ANALYSIS

Abstract

The various financing decisions are vital for the financial welfare of the firm. A false decision about the capital structure may lead to financial distress and eventually to bankruptcy. The management of a firm sets its capital structure in a way that firm’s value is maximized. However, firms do choose different financial leverage levels in their effort to attain an optimal capital structure. Although theoretical and empirical research suggests that there is an optimal capital structure, there is no specified methodology, yet, that financial managers can use in order to achieve an optimal debt level. However, financial theory does provide some help in understanding how the chosen financing mix affects the firm’s value. All the theories that have subsequently emerged tried to answer the moot question as what are the factors that affect capital structure decisions. In the process of their enquiry scholars have identified several dimensions out of which firm’s own characteristics is of prime concern apart from corporate governance, legal framework and institutional environment of the countries in which firm operates. Thus the objective of study is to analyze some of the firm’s own characteristics that might affect the leverage of steel companies of India. Capital structure in Indian steel industries large/medium had under gone various changes due to the growth in the infrastructure projects and global demand. This made the steel industry to grow at a wide range by reducing debt. The higher demand for steel both in global & domestic market had higher opportunity for expansion.