Impact of Capital Structure Decisions on Financial Performance during Pre- and Post-recession Period

Abstract

The present research study undertaken by us will throw light on the fact whether capital structure decisions have any impact on the financial performance of companies belonging to Bombay Stock Exchange (BSE) 500 during the recent pre- and post-global recession period. The pre-recession period has been taken from 2001–2002 to 2006–2007, while the post-recession period has been taken from 2007–2008 to 2012–2013. The dependent variable taken into consideration is the ‘return on assets’ and the 10 independent variables which might have some impact on the capital structure decisions taken into consideration are ‘business risk’, ‘size (log sales)’, ‘size (log assets)’, ‘growth rate(assets)’, ‘interest coverage ratio’, ‘degree of operating leverage’, ‘dividend payout’, ‘financial leverage’, ‘tangibility’ and ‘non-debt tax shield’. Logistic regression has been utilized in this study. This study also helps us to understand if there is any significant change in variables related to capital structure decisions influencing profitability of BSE 500 companies in the ‘post-recession period’ when compared to the ‘pre-recession period’.