The Effect of Capital Structure on Profitability -An Empirical Analysis of
Indian Paper Industry
A.Vijayakumar
Associate Professor of Commerce, Erode Arts and Science College, Erode, Tamil Nadu, India
A.Karunaiathal
Ph.D., Research Scholar in Commerce, Erode Arts and Science College, Erode, Tamil Nadu, India
Abstract
Financing the firm’s assets is a very crucial problem in every business and as a general rule there should be a proper mix of debt and equity capital in financing firm’s assets. While designing an optimal capital structure, the management has to keep in mind the objective of maximizing the value of the firm Thus, an attempt has been made in this study to find the relationship between the capital structure and profitability. The overall analysis of impact of profitability on capital structure reveals that operating profit margin, net profit margin and market price per share disclosed a positive and significant relationship with capital structure of majority of the selected companies during the study period. However, return on capital employed, return on net worth and earnings per share predicts a negative but statistically significant relationship with capital structure of majority of the selected companies during the study period.
Keywords: Corporate Capital Structure, Corporate Profitability, Operating Profit, Return on Capital Employed and Indian Paper Industry.
Financial management of any corporate sector revolves around three major decisions, viz., financial decisions, investment decisions and dividend decisions. Financial decisions are concerned with the sources of finance, i.e. from where finances should be raised. There are basically two sources of finance i.e. short-term and term. The capital structure of a company is determined by the long-term sources of finance. Pandey (2005, p.5) stated that the long-term capital structure is used to represent the proportionate relationship between debt and equity. A business enterprise generally procures its permanent capital in the form of long-term debt, preference shares, ordinary shares and reserves and surpluses. These are individual components, which when taken together, would constitute a company’s capital structure. Thus the aim of capital structure management is the profit maximization or wealth maximization ensuring minimum cost of capital and maximum rate of return to the common
shareholders. Chakraborty (1981, p.111) stated that a judicious mix of debt and equity securities
would maximize the value of equity. The financial manager of corporate has to plan an optimum capital structure for the company in such a way that it gives the maximum benefits and thus maximizes the wealth of shareholders.
enterprise will have to plan its own capital structure keeping in view both its short-term requirements and long-term expansion programmes.
Statement of the Problem
Financing the firm’s assets is a very crucial problem in every business and as a general rule there should be a proper mix of debt and equity capital in financing firm’s assets. While designing an optimal capital structure, the management has to keep in mind the objective of maximizing the value of the firm Thus, an attempt has been made in this study to find the relationship between the capital structure and profitability. Based on the above facts, the researcher has probed the following question: What is the relationship between capital structure and profitability of selected large scale companies in Indian Paper Industry?
Selection of sample
Keeping in view of the scope of the study, it is decided to include all the large scale paper
companies under Indian paper industry working before or from the year 1996-97 to 2009-2010. There are 21 large scale paper companies operated in India. But, owing to several constraints such as the non-availability of financial statements or the non-working of a company in a particular year and merger and acquisition etc., it is compelled to restrict the number of sample companies to ten. The Capitaline and CMIE database publish key financial data of Indian corporate sector systematically. Hence, Capitaline and CMIE databases proved to be complimentary to finalize the sample for the study. The exhaustive list of paper industry in India from Capitaline was cross checked with CMIE database to sort out companies to fit in as the sample for the study. The comprehensive list of companies prepared from the database was modified by sorting out the firms using the following criteria; (i)Those were not in operation for a year during the period of stud; (ii)Those were in operation but non-availability of data for the whole study period; (iii) Those that were merged with another company during the period of study and (iv) Those that had below 50,000 MT installed capacity. The list of large paper companies selected included in the present study along with the year of incorporation, ownership pattern and its market share is presented in Table 1. It is evident from Table 1 that sample companies represent 60.37 percentage of market share in the Indian paper industry. Thus, the findings based on the occurrence of such representative sample may be presumed to be true representative of paper industry in the country.
Period of study
The period 1997-98 to 2009-10 is selected for this study of Indian paper industry. This 13 years period is chosen in order to have a fairly, reasonably reliable and up -to-date financial data would be available.
Sources of data
The data required for the study have been obtained from secondary sources. The study is mainly based on secondary data. The major sources of data analysed and interpreted in this study related to all those companies selected is collected from “PROWESS” database, which is the most reliable and the empowered corporate database of Centre for Monitoring Indian Economy (CMIE). Besides Prowess database, relevant secondary data have also been collected from BSE Official Directory, CMIE publications, published annual reports of the companies, annual survey of industries, business news papers, Reports on Currency and Finance, Centre for Industrial and Economic Research (CIER’s) Industrial Data Book, publications of the Indian Pulp and Paper Technical Association (IPPTA), Libraries of various research institutions, through internet and from official websites of the selected companies. Various journals and periodicals on finance and industry have also been reviewed. Analysis of the empirical relationship between capital structure and Profitability
higher debt levels than less profitable firms. Ramkumar et al. (1996) Jitendra Mahatud and L.M. Bhole (2003), Sudhansu Mohan et al. (2005), Debatrata Datta and Babita Agarwal (2009), Ramesh K.Singla (2006) Attaullah Shah (2007) Boopen et al. (2007) and Bidyut Jyoti and Bhattacharjee (2010) studied the impact of profitability and capital structure and found both positive and negative relationship. Thus, an attempt was made in this part to examine the relationship between debt equity and profitability of selected Indian paper industry during the study period.
Many factors influence the profitability of companies. This study has been conducted choosing six independent variables and one dependent variable to analyse the relationship between capital structure and profitability ratios of the selected large scale paper companies in India. Simple regression models are used to test the theoretical relationship between the debt equity and profitability ratios. The analysis is made with the help of Statistical Package of Social Sciences (SPSS). In this study, Operating Profit (OP), Profit after tax (PAT), Return on Capital Employed (ROCE), Return on Net worth (RONW), Earnings per Share (EPS) and Market Price per Share (MPS) were used as independent variables for this purpose. This study has tested the following null hypotheses related to the defined variables of profitability of selected large scale companies in Indian paper industry.
Ho: There is no significant relationship between debt equity ratio and profitability ratios of the selected companies.
Debt equity ratio with operating profit
An attempt has been made to examine the relationship between debt equity ratios with operating profit of selected large scale companies in the Indian paper industry over the period 1997-98 to 2009-10. The linear regression model fitted is as follows:
D/E = α + β (OP) +e --- (i) Where,
D/E - Debt equity ratio, OP - Operating profit,
α , β - Parameters to be estimated (intercept and co-efficient respectively) and e - Error term.
Table 2 exhibits the relationship between debt equity ratio and operating profit of the selected large scale companies in the Indian paper industry. It is inferred from Table 25 that the regression models of debt equity ratio with operating profit of the selected companies have proved to be a good
fit. This is revealed from the value of R2 (0.40) the co-efficient of determination, F value and
corresponding P values. The co-efficient of determination R2 exposes that around 58 per cent changes
in the capital structure is influenced by one per cent change in the operating profit of the Indian paper industry and it is 40 per cent in the selected companies in Indian paper industry. Among the selected companies, this variation ranges from 25 per cent (Ballarpur Industries Limited) to 57 per cent (Andhra Pradesh Paper Mills Limited) during the study period.
It is manifested from the empirical result that the beta co-efficient of operating profit for the
significant factor which affects the capital structure of the selected large scale companies in Indian paper industry. To conclude, if operating profit of the company is more, they can afford to raise finance more from debt i.e. high profitable companies have a liberty to use debt financing as and when it needs. Thus, companies with high profit can avail the advantage of flexible capital structure.
Debt equity ratio with net profit margin ratio
Table 3 presents the regression analysis of the second variant of profitability i.e. net profit margin of the selected large scale paper companies during the study period. The linear regression model fitted to test debt equity ratio with net profit margin is as follows.
D/E = α + β (NP) + e ---- --- - (ii) Where,
D/E - Debt equity ratio,
NP - Net profit,
α , β - Parameters to be estimated (intercept and co-efficient respectively) and e - Error term.
It is inferred from Table 3 that the co-efficient of determination of net profit (R)2 and the
adjusted R2 indicates that one per cent change in net profit leads to 59 per cent changes in the debt
equity of the Indian paper industry. But in the sector average, it influence 36 per cent changes in debt equity ratio. Among the selected companies this variation ranges from 21 per cent (Rama Newsprint Limited) to 57 per cent (Hindustan Paper Corporation Limited). This difference between the selected companies is expected because the firms’ ability to raise funds and earn profit depends on many factors and these factors differ from company to company. The DW value also depicts lack of autocorrelation in the regression model of debt equity with net profit margin. The regression beta co-efficient of both the industry and the large scale sector are negative, but it is statistically significant at five per cent level of significance. The analysis reveals that beta co-efficient of net profit is statistically positive in all the selected companies except Ballarpur Industries Limited, JK Paper Mills Limited and Rama Newsprint Limited during the study period. Thus, it is clear from the analysis that there is a positive and significant relationship between capital structure and net profit of most of the selected companies. The analysis of ‘t’ test rejects the set hypothesis and thereby proves that there exists a significant relationship between capital structure and net profit in eight out of ten companies. Thus, the empirical result of regression analysis of debt equity with net profit depicts both positive and negative relationship. These results are consistent with the results of Syed et al (2006), Bidyut Jyoti Bhattacharjee (2010), Mihaela Dragota (2009) and Sanjay Bhayani (2010) who found a positive relationship between capital structure and net profit in their study. Rajan Zingles (1995), Wald (1999), Joshua Abor (2007) and Ying Hong Chen (2007) found a significantly negative relationship between capital structure and net profit. To conclude, net profit is a significant factor which affects the capital structure of the most of the selected large scale companies in Indian paper industry. This observation seems to be very practical because those companies which have higher profit at their disposal tend to get the benefit of cheaper source of fund, i.e. debt can increase their profitability still further because of the tax advantage.
Debt equity with return on capital employed
Table 4 presents the regression analysis of the debt equity with the return on capital employed of the selected large scale companies in Indian paper industry during the study period. The linear regression model fitted to test debt equity with ROCE is -
D/E = α + β (ROCE) + e --- (iii) Where,
D/E - Debt equity ratio,
ROCE - Return on capital employed,
Table 4 shows that the co-efficient of determination of return on capital employed (R2) of
Indian paper industry explains 51 per cent change in the debt equity ratio. But in the case of sector
average, the value of R2 is 0.41 i.e. 41 per cent changes in the debt equity ratio is explained by one per
cent change in return on capital employed. It is also observed that the co-efficient of determination (R2) has
registered the highest value in JK Paper Mills Limited (0.70) and it was the lowest in Seshasayee Paper and
Boards Limited (0.21).The result of the beta co-efficient reflects a negative impact of debt equity on return on
capital employed (-0.03) of the Indian paper industry, but it is positive and statistically significant in the sector (0.01) at five per cent level of significance. Among the individual companies, it is positive in five out of ten companies, but statistically significant in all the selected companies except Seshasayee Paper and Boards Limited during the study period. This indicates that, the selected companies have both positive and negative relationship between return on capital employed and capital structure during the reference period.
Thus, the result of the test rejects the respective hypothesis that there is no significant relationship between capital structure and return on capital employed. Hence, it is concluded that the return on capital employed is a significant factor which affects the capital structure of most of the selected companies in Indian paper industry. This result supports the results of Balram (2009) who found positive relationship and Karamjeet sing (2006) and Bidyut Jyoti Bhattacharjee (2010) who found negative relationship between debt equity ratio and return on capital employed in their respective studies.
Debt equity ratio with return on net worth
The relationship between debt equity and return on net worth have explored by means of regression analysis and presented in Table 5. The linear regression model fitted is as follows.
D/E = α + β (RONW) + e -- --- -- -- --- - -- (iv) Where, D/E - Debt equity ratio,
RONW - Return on net worth,
α , β - Parameters (intercept and co-efficient respectively) and e - Error term.
Table 5 presents the regression analysis of the debt equity with return on net worth of the selected companies during the study period. The maximum level of co-efficient of determination of
return on net worth (R2) in case of Indian paper industry is 0.49 which influence 49 per cent changes in
the debt equity ratio. The return on net worth of the sector influence 48 per cent changes in debt equity
ratio. In case of individual companies, the co-efficient of determination (R2) ranges from 3 per cent to 51
per cent. This suggests that one per cent change in return on net worth leads to three per cent to fifty one per cent changes in debt equity ratio of the selected companies during the study period.
The beta co-efficient of return on net worth exhibits a negative relationship with the capital structure of both the Indian paper industry and the large scale sector of the paper industry during the study period. Among the selected companies, the beta co-efficient of return on net worth of all the selected large scale companies in Indian paper industry reveals a negative relationship except Mysore Papers Limited. However, the ‘t’ value of the return on net worth proves a statistically significant relationship in eight out of ten companies at five per cent level of significance. Thus, the results of the study reject the null hypothesis. Hence, it is concluded that there is a significant relationship between debt equity and the return on net worth of the majority of the selected companies. These results are
consistent with the results of Joshua (2007). However, Ramachandra (2006) and Bidyut Jyoti
Bhattacharjee (2010) who found negative relationship between debt equity and return on net worth in their studies. Thus, return on net worth is a significant factor which affects the capital structure of most of the selected large scale companies in the Indian paper industry.
Debt equity ratio with Earnings Per Share
D/E = α + β (EPS) + e --- --- (v) Where,
D/E - Debt equity ratio, EPS - Earnings per Share
α , β - Parameters to be estimated (intercept and co-efficient) and e - Error term.
Table 6 showed the extent to which the changes in earnings per share affect the capital
structure. In case of Indian paper industry, the co-efficient of determination R2 is 0.53 i.e. earnings per
share leads to 53 per cent increase in the debt equity ratio. In case of the large scale sector, it influences 41 per cent changes in debt equity ratio. Among the individual companies the co-efficient of determination of earnings per share accounts for a variation of 20 per cent to 52 per cent. The beta co-efficient of earnings per share of both the Indian paper industry and the large scale sector predicts a positive relationship with the debt equity ratio. Among the selected companies the beta co-efficient varies between companies. The beta co-efficient of all the selected companies have recorded a negative relationship except West Coast Paper Mills Limited during the study period. However, it is found that there exists statistically significant relationship between debt equity and earnings per share during the
study period. Similarly, the degree of explanation of debt equity (R2) in different companies also
varied to a considerable degree. The estimates are in line with the null hypothesis and there is no relationship between capital structure and earnings per share of the selected companies. Thus, it is concluded that there is a negative relationship between capital structure and earnings per share of the selected companies during the study period. These estimates are in line with the results of Veni (2002), Falguni shastri (2005), Ramachandra (2006), Karamjeet Sing (2006) and Bidyut Jyoti Bhattacharjee (2010) who found a negative relationship between debt equity and earnings per share in their study. On the whole, the overall trend of this ratio kept fluctuating during the period under study. Thus, it can be concluded that the company with higher debt equity ratio have inverse relationship with earnings per share.
Debt equity ratio with market price of share
Table 7 presents the regression analysis of the debt equity with market price per share of the
selected companies during the study period. The linear regression model fitted to test debt equity with market price per share is as follows.
D/E = α + β (MPS) + e -- -- --- -- --- -- -- - (vi) Where,
D/E - Debt equity ratio, MPS - Market price per share,
α , β - Parameters to be estimated (intercept and co-efficient) and e - Error term.
Table 7 brings to light the relationship between debt equity ratio and market price per share. It has observed from the empirical test that the regression model applied has a good explanatory power.
This is proved by the values of R2 [0.41 and 0.59] and adjusted R2 [0.33 and 0.47] for the paper
industry and the large scale sector of the paper industry respectively, i.e. one per cent change in market price per share have an impact of about 41 per cent variation in the debt equity ratio of the paper industry and around 59 per cent in the large scale sector of the Indian paper industry. The co-efficient
of determination (R2) registered the highest value (0.56) in Hindustan Paper Corporation Limited and
it was the lowest in JK Paper Mills Limited (0.15). This suggests that 15 per cent to 56 per cent changes in debt equity ratio are influenced by the change in market price per share. This difference between individual companies is expected because the firms’ ability to raise its market price depends on many factors and these factors differ from company to company.
The beta co-efficient of market price per share points out a positive and significant
positive and significant in all the selected companies except in Hindustan Newsprint Limited and Rama Newsprint Limited. Further, though the beta co-efficient of Hindustan Newsprint Limited and Rama Newsprint Limited are negative, but it is statistically significant. Hence, it rejects the hypothesis of there is no significant relationship between capital structure and market price per share of the selected large scale companies in Indian paper industry. To conclude, the empirical result of the regression analysis of debt equity with market price per share discloses a positive and statistically significant relationship between capital structure and market price per share of majority of the selected companies in Indian paper industry. These results are supported by the findings of Schoolley (1990), and Veni (2002). But this result was contradictory to the findings of Karamjeet Sing (2006), Falguni shastri (2005) and Bidyut Jyoti Bhattacharjee (2010) who found negative relationship between debt equity and market price in their studies.
Conclusion
The impact of profitability on capital structure of Indian paper industry was examined using the technique of linear regression models. The result reveals a statistically positive and significant relationship between operating profit and capital structure of all the selected companies except JK Paper Mills Limited and Rama Newsprint Limited. It was found that profit after tax was a significant factor affecting the capital structure of the companies. The regression beta co-efficient of profitability of both the industry and the large scale sector of the paper industry are negative but it is statistically significant during the study period. The analysis also confirms that there was a direct relationship between net profit and capital structure of most of the selected companies. The analysis of ‘t’ test rejects the set hypothesis and thereby proves that there exists a significant relationship between capital structure and net profit in eight out of ten companies. This observation seems to be very practical because those companies which have higher profit at their disposal tend to get the benefit of cheaper source of fund, i.e. debt can increase their profitability still further.
The regression analysis reflects a negative impact of return on capital employed on capital structure of the Indian paper industry. It is also inferred that the return on capital employed is positive in five out of ten companies, but statistically significant in all the selected companies except Seshasayee Paper and Boards Limited during the study period. Thus, return on capital employed is a significant factor, which affects the capital structure of most of the selected companies in Indian paper industry. The regression analysis of the return on net worth with debt equity of the selected companies reveals a negative relationship in both the Indian paper industry and the large scale sector of the paper industry during the study period. All the selected large scale companies in Indian paper industry showed an inverse relationship between return on net worth and capital structure except Mysore Papers Limited during the study period.
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ANNEXURE
Table 1
Selected paper companies for the study
S. No Name of the Company incorporation.Year of Ownership Market Share
1. Andhra Pradesh Paper Mills Limited 1964 Bangur L.N., 2.84
2. Ballarpur Industries Limited 1945 Avantha group 9.26
3. Hindustan Paper Corporation Limited 1983 Govt. of India 4.49
4. Hindustan Newsprint Limited 1970 Govt. of India 10.49
5. JK Paper Mills Limited 1960 Singhania Harishanker 4.51
6. Mysore Paper Mills Limited 1936 State Govt. of
Karnataka 8.73
7. Rama Newsprint and Papers Limited 1991 Bangur group 9.71
8. Seshasayee Paper and Boards Limited 1960 Ervin group 2.63
9. Tamil Nadu Newsprint and Papers Ltd. 1979 State Govt. of Tamil Nadu 4.50
10. West Coast Paper Mills Limited 1955 Bangur group 3.11
Table 2
Debt equity with operating profit margin -Regression Analysis (Dependent variable - Debt equity ratio)
[ D/E = α + β (OP) ]
Companies Constant (α) Co-efficient of OP (β ) R2 Adj.R2 F P DW
AP 0.17 0.02 0.61 0.57 17.06* 0.00 1.69
(4.10*)
BAL 1.91 0.00 0.32 0.25 5.08* 0.05 2.07
(2.25**)
HP 1.07 0.03 0.56 0.48 15.36* 0.00 0.11
(3.60*)
HNP 0.13 0.01 0.48 0.40 13.26* 0.00 0.68
(4.15*)
JK 2.99 -0.01 0.28 0.26 4.26* 0.06 0.83
(2.06**)
MP 1.76 0.04 0.36 0.30 6.09* 0.03 0.55
(2.47**)
RN 2.12 -0.01 0.52 0.47 14.81* 0.01 0.53
(2.22**)
SP 1.43 0.01 0.42 0.38 10.16* 0.01 0.87
(2.95*)
TNP 0.85 0.02 0.30 0.26 9.81* 0.01 0.69
(2.28**)
WC 0.93 0.01 0.58 0.51 12.86* 0.00 1.73
(4.42*)
Sector 1.56 -0.04 0.40 0.43 4.62* 0.06 0.88
(2.15**)
Industry 1.16 0.01 0.58 0.52 15.86* 0.00 0.61
(3.45*)
** - Significant at 0.01 level; ** - Significant at 0.05 level; Figures within parentheses indicate ‘t’ values
Table 3
Debt equity ratio with net profit ratio - Regression Analysis (Dependent variable - Debt equity ratio
[ D/E = α +β (NP) ]
Companies Constant (α) Co-efficient of NP (β ) R2 Adj.R2 F P DW
AP 0.68 0.001 0.56 0.49 15.56* 0.01 0.67
(2.77*)
BAL 1.48 -0.01 0.40 0.35 7.37* 0.02 1.96
(2.71*)
HP 0.98 0.001 0.63 0.57 16.48* 0.00 0.11
(2.44*)
HNP 0.14 0.001 0.38 0.33 10.16* 0.01 0.81
(1.68**)
JK 2.79 -0.02 0.43 0.38 13.65* 0.00 0.81
(1.77**)
MP 2.27 0.001 0.41 0.36 9.65* 0.06 0.16
(2.14**)
RN 1.68 -0.02 0.28 0.21 4.30* 0.06 0.47
(2.07**)
SP 1.81 0.01 0.36 0.28 6.67* 0.04 0.75
(2.26*)
TNP 0.99 0.01 0.28 0.22 5.45* 0.04 0.60
(0.97)
WC 1.00 0.01 0.33 0.27 5.96* 0.05 1.69
(1.60**)
Sector 1.45 -0.01 0.36 0.32 3.87** 0.08 0.87
(1.97**)
Industry 1.15 -0.01 0.59 0.51 10.46* 0.00 0.60
1.75**
* - Significant at 0.01 level; ** - Significant at 0.05 level; Figures within parentheses indicate ‘t’ values
Table 4
Debt equity with return on capital employed -Regression Analysis (Dependent variable - Debt equity ratio
[ D/E = α +β (ROCE)]
Companies Constant (α) Co-efficient of ROCE (β) R2 Adj.R2 F P DW
AP 1.55 -0.06 0.69 0.64 22.14* 0.00 0.96
(4.71*)
BAL 2.24 -0.10 0.30 0.32 1.22 0.29 1.74
(1.71**)
HP 0.44 0.01 0.46 0.42 9.53* 0.01 0.80
(3.09*)
HNP 0.12 0.01 0.25 0.31 2.58** 0.46 0.67
(1.76**)
JK 0.85 0.09 0.70 0.67 25.39* 0.00 1.71
(5.04*)
MP 1.90 0.09 0.38 0.32 6.60* 0.03 0.62
(2.57**)
RN 1.92 -0.06 0.22 0.31 3.10** 0.32 0.59
(1.95**)
SP 1.56 0.01 0.21 0.22 0.12 0.73 0.83
(0.35)
TNP 1.14 -0.02 0.23 0.23 3.35** 0.27 0.64
(1.96**)
WC 1.77 -0.03 0.25 0.39 3.75** 0.08 1.27
(1.94**)
Sector 1.08 0.01 0.41 0.49 7.55* 0.02 0.82
(2.75*)
Industry
1.42 -0.03 0.51 0.55 4.93* 0.05 0.49
(2.72*)
* - Significant at 0.01 level; ** - Significant at 0.05 level; Figures within parentheses indicate ‘t’ values
Table 5
Debt equity ratio with return on net worth ratio -Regression Analysis (Dependent variable - Debt equity Ratio
[ D/E = α +β (RONW)]
Companies Constant (α) Co-efficient of RONW(β) R2 Adj.R2 F P DW
AP 1.61 (3.35*) -0.04 0.51 0.46 11.24* 0.01 0.91
BAL 2.22 (2.31**) -0.05 0.33 0.01 5.37* 0.04 1.41
HP 1.14 (3.06*) -0.05 0.46 0.41 9.35* 0.01 0.86
HNP 0.12 (0.91) -0.01 0.07 0.01 0.81 0.38 0.67
JK 0.95 (2.72*) -0.05 0.40 0.35 7.41* 0.02 0.93
MP 1.84 (3.24*) 0.04 0.49 0.44 10.46* 0.01 0.77
RN 1.92 (0.61) -0.02 0.03 0.01 0.37 0.55 0.41
SP 1.07 (1.69*) -0.02 0.21 0.13 2.86** 0.12 1.22
TNP 0.51 (1.46**) -0.03 0.16 0.01 2.84** 0.17 1.56
WC 1.61 (1.36**) -0.01 0.09 0.01 1.10 0.32 1.36
Sector 0.85 (2.08**) -0.04 0.48 0.22 4.38* 0.06 1.77
Industry 1.44 (2.17**) -0.02 0.49 0.24 4.70* 0.05 0.56 *- Significant at 0.01 level; ** - Significant at 0.0 5 level;
Table 6
Debt equity ratio with earnings per share - Regression Analysis (Dependent variable - Debt equity ratio)
[D/E = α + β (EPS) ]
Companies Constant (α) Co-efficient of EPS (β ) R2 Adj.R2 F P DW
AP
BAL
HP
HNP
JK
MP
RN
SP
TNP
WC
1.06 -0.01 0.35 0.31 13.24* 0.00 1.13
(3.64*)
1.36 -0.03 0.52 0.26 5.14* 0.05 1.10
(2.27**)
1.43 -0.01 0.27 0.21 4.12* 0.34 0.52
(2.03**)
0.41 -0.01 0.20 0.13 2.89** 1.23 1.08
(0.83)
3.17 -0.19 0.41 0.25 5.01* 0.69 1.12
(2.24**)
2.26 -0.061 0.32 0.07 0.17 0.43 0.17
(0.42**)
1.80 -0.09 0.27 0.03 0.66 0.41 0.40
(0.81)
2.21 -0.02 0.27 0.10 3.30** 0.16 1.29
(1.92**)
1.05 -0.03 0.26 0.19 3.89** 0.07 1.36
(1.97**)
0.86 0.01 0.42 0.17 11.80* 0.01 1.27
(3.44*)
Sector 1.70 0.24 0.41 0.57 3.42** 0.09 1.90
(1.85**)
Industry 1.29 0.42
(2.85*)
0.53 0.59 4.91* 0.31 1.60
* - Significant at 0.01 level; ** - Significant at 0.0 5 level; Figures within parentheses indicate ‘t’ values
Table 7
Debt equity ratio with market price per share -Regression Analysis (Dependent variable - Debt equity ratio
[D/E = α + β (MPS)]
Companies Constant (α) Co-efficient of MPS
(β ) R
2 Adj.R2 F P DW
AP
0.58 0.01 0.25 0.18 3.67** 0.08 1.09
(1.92**)
BAL
1.39 0.01 0.26 0.19 3.77** 0.08 1.04
(1.94**)
HP
2.10 0.01 0.56 0.25 8.69* 0.00 0.78
(8.29*)
HNP
2.09 -0.08 0..28 0.22 4.36* 0.06 1.01
(2.09**) JK
2.97 0.01 (1.39**) 0.15 0.07 1.94 0.19 0.77
MP
0.58 0.02 (2.90*) 0.43 0.38 8.42* 0.01 0.87
RN
3.20 -0.01 (4.79*) 0.28 0.25 22.93* 0.00 1.00
SP
2.16 0.00 (1.48**) 0.25 0.09 2.18 0.17 0.99
TNP
1.10 0.01 (1.76**) 0.22 0.15 3.09** 0.11 1.23
WC
1.04 0.05 (0.03) 0.27 0.20 4.40* 0.07 1.46
Sector
1.51 0.01 0.59 0.47 11.59* 0.01 0.92
(2.01**)
Industry 1.35 (1.89**) -0.02 0.51 0.43 4.60* 0.05 0.96
* - Significant at 0.01 level; ** - Significant at 0.0 5 level; Figures within parentheses indicate ‘t’ values
