CAPITAL STRUCTURE DETERMINANTS AND VARIATIONS: A STUDY OF AGRICULTURE SECTOR FIRMS

The capital structure decisions are taken judiciously will not only reduce the operating risk but also leads to maximization of firm value. The approach will also help in achieving the fundamental objective of any business firm i.e., wealth maximization that ultimately leads to value maximization.The objectives of the study are to assess the determinants of capital structure of Agriculture Sector Firms and to assess the impact of firm specific determinants of Agriculture Sector Firms in deciding the financial structure. The findings of Agriculture Sector firms show that there is a positive relationship between return on net worth, non-debt tax shield, profitability, and growth with financial leverage. The relationship between return on capital employed, interest cover ratio, collatralizable value of assets and size is negative indicating that the negative relationship existing between collatralizable value of assets and financial leverage is due to the reason that increase in a debt is used to finance the current assets due to which the proportion of net fixed assets in total assets reduces. The negative relationship between size and financial leverage is due to the reason that the availability of information that outsiders have about the firm and thus increases the preference for equity relative to debt. The present study investigates various competing theories in explaining the capital structure decisions of Agriculture Sector Firms. For this purpose, a measure of leverage is regressed on firm characteristics that have been identified by previous research as important determinants of capital structure.