Relation Between Growth in Fixed Assets and Choice of Capital Structure in Indian Context

Abstract

This study investigates how fixed assets affect capital structure. For the purpose, a dynamic panel regression model with fixed assets as the independent variable and capital structure as the dependent variable was developed. In the Indian context, the notion of target capital structure, which might have an impact on investment in fixed assets, has been investigated. When debt is invested in fixed assets, the greater sales brought on by larger fixed assets translate into reduced debt-to-equity ratios. This paper considers the BSE 500 companies over a period of 18 years from 2001-2002 to 2017-18. The study observed that the fixed asset and lag value of debt-equity work together to influence debt-equity more persuasively than they do separately.