Impact of capital structure on firm s profitability and shareholder wealth maximization A study of listed Indian cement companies
The capital structure decision is the imperative one since the profitability of the firm is specifically influenced by such decision. It is redundant that benefit ought to be the main target for a business. Profit maximization is part of the wealth creation process. Where, wealth maximization is a long haul process. It alludes to the value of the firm and it is expressed in the value of stock. Hence, this study has aimed at investigating the impact of capital structure on the profitability and shareholder wealth of the listed cement manufacturing companies using a panel data methodology. The study considered all the listed cement manufacturing companies on the National Stock Exchange over the past 8 years. To analyze the data various statistical techniques include descriptive statistics, correlation analysis and regression analysis were used. Two kinds of variables were used in the study. Dependent variables are Return on Asset, Tobin's q ratio to measure market value and EPS to measure shareholder wealth. Where, the independent variables were leverage, debt to equity ratio, total liability, size and rate of growth in sales. Our results showed that the capital structure (debtequity ratio) positively impact the firm's profitability, market value and shareholder wealth but statistically this relation is not significant. This study is significant in that it will add to the already existing literature on the impact of capital structure on the firm's profitability and shareholder wealth.