AN EMPIRICAL ANALYSIS ON THE IMPACT OF CAPITAL STRUCTURE DETRIMENTS ON PROFITABILITY OF FIRM: A CASE ON LISTED IT COMPANIES IN INDIA

To operate efficiently firms are free to raise equity or debt or any combination of two to optimally manage the financing of its assets. Because of tax advantage and as a cheaper source of finance Debt component is very often preferred and given a significant proportion in determining the capital structure of the firm. In present study we are mainly focusing on the analysis that whether or not capital structure has any impact over the profitability of Listed IT companies in Indian market. Through the present elaborated we are trying to establish the relationship between capstr(capital structure) and profitability and its effects on business revenue also. For a more purposeful analysis, selected firms are grouped under three categories on the basis of two attributes i.e revenue earned by business and firms' assets size. At the very first stage, firms are grouped into low, medium and large on the basis of their respective assets size to test the hypothesis established that capstr has a significant impact on selected profitability measures of listed IT companies in India. For the purpose of our analytical study we choose a sample size of 96 IT companies through multi stage sampling technique for 10 years of data sets ranging from 2007 to 2017 for analysis purpose. Two dependent variables and four independent variables with one controlled variable are taken under consideration for analysis using regression. We used descriptive statistics such as Mean, S.D. and Ratio along with the techniques such as Pearson Coefficient of Correlation, which is primarily used for testing the relationship between capstr variables and profitability measures under scope of our study along the side we also used Regression analysis(OLS Model) to test the unidentified impact of capstr on profitability variables under scope. The use of correlation tools are mainly done for the purpose of finding out multicolinearity among independent variables to decide that what variables can further be tested in our regression models. The study proves the relationship of capstr variables and profitability variables with the help of analysis that capital structure has significantly influenced the profitability of the firms and a substantial increase in debt component in capital structure leads to a decrease in Net Profit of Listed IT companies in Indian market.