Volume : IV, Issue : XI, November - 2014

Impact of Corporate Leverage on Profitability–Evidence from Indian Paper Industry

Dr. A. Vijayakumar, Ms. A. Karunaiathal

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 leverage and profitability. The empirical analysis reveals that there is a positive and significant impact of leverage measured in terms of total debt to total capital with the return on equity of both the Indian paper industry and the large scale sector. Seven out of ten companies showed a positive relationship between leverage and return on equity and this relationship is negative in the remaining companies, but the result confirms statistically significant impact between these variables in all the selected companies during the study period. Thus, the overall analysis proves that there was a positive and statistically significant relationship between leverage measured in terms of total debt to total capital and return on equity of most of the selected companies during the study period. The study also disclosed a negative and statistically significant relationship between leverage measured in terms of short–term debt to total capital and long–term debt to total capital with return on equity of the most of the selected companies during the study period.

Keywords :

Article: Download PDF   DOI : 10.36106/ijar  

Cite This Article:

Dr.A.Vijayakumar, Ms.A.Karunaiathal Impact of Corporate Leverage on Profitability‾Evidence from Indian Paper Industry Indian Journal of Applied Research, Vol.4, Issue : 11 November 2014

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