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Corporate Leverage and Financial Decision in the Indian Textile Industry

Author

Listed:
  • Ramachandran Azhagaiah

    (Pondicherry Central University, India)

  • Selvaraj Sathia

    (Pondicherry Central University, India)

Abstract

In the presence of market imperfections, leverage has the potential to have an important influence on investment decisions. If a firm makes money on its borrowing (has favorable financial leverage), the shareholders realize higher earnings per share (EPS) than would be the case in the absence of debt, as the debt-equity ratio (DER) is a long term risk measure. In the present study 25 textile firms, which are listed in Bombay Stock Exchange are taken as a sample for the study period from 2004 to 2008. The study reveals that the firms i. e. ACM, AFL, ASL, BASML, BCIL, GSM, GDPM and GJML show significant growth rate in financial, operating and combined leverage.

Suggested Citation

  • Ramachandran Azhagaiah & Selvaraj Sathia, 2012. "Corporate Leverage and Financial Decision in the Indian Textile Industry," Managing Global Transitions, University of Primorska, Faculty of Management Koper, vol. 10(1 (Spring), pages 87-114.
  • Handle: RePEc:mgt:youmgt:v:10:y:2012:i:1:p:087-114
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    File URL: http://www.fm-kp.si/zalozba/ISSN/1581-6311/10_087-114.pdf
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    References listed on IDEAS

    as
    1. Andrew Benito & John Whitley, 2003. "Implicit interest rates and corporate balance sheets: an analysis using aggregate and disaggregated UK data," Bank of England working papers 193, Bank of England.
    2. Bhavish Jugurnath & Mark Stewart & Robert Brooks, 2008. "Dividend taxation and corporate investment: a comparative study between the classical system and imputation system of dividend taxation in the United States and Australia," Review of Quantitative Finance and Accounting, Springer, vol. 31(2), pages 209-224, August.
    3. Whited, Toni M, 1992. " Debt, Liquidity Constraints, and Corporate Investment: Evidence from Panel Data," Journal of Finance, American Finance Association, vol. 47(4), pages 1425-1460, September.
    4. Alfonsina Iona & Leone Leonida & Aydin Ozkan, "undated". "Determinants of Financial Conservatism: Evidence from Low-Leverage and Cash-Rich UK Firms," Discussion Papers 04/01, Department of Economics, University of York.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    capital structure; financial leverage; operating leverage; corporate leverage; financial decision; debt equity ratio;

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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