The Impact of Capital Structure on Profitability of Manufacturing Companies: using Multiple Regression Model

Abstract

This paper investigates the impact of capital structure on profitability of the manufacturing companies in India. It tries to establish the hypothesized relationship as to how far the capital structure variable affects the business revenue of companies and what the interrelationship is between capital structure variable and profitability. This study is carried out after categorizing the selected manufacturing companies into three categories based on two attributes, viz. phases and period. First, manufacturing companies are grouped into pioneering stage, growth stage, consolidation stage on phases. Second, manufacturing companies are classified into pre and post merger based on period to establish the hypothesized relationship that capital structure variable has significant impact on profitability of manufacturing companies in India. For this study, a sample of seventy companies was chosen by the Multi-Stage Sampling Technique. Multiple Regression Analysis has been used to analyze the unique impact of capital structure variable on profitability. The study proves that there has been a strong one-to-one relationship between capital structure variable and Profitability variables, profit before tax the capital structure variable has significant influence on Profitability, and increase in use of debt fund in capital structure variable tends to minimize the net profit of the manufacturing companies.