Relationship between Capital Structure and Firm Performance: An Analysis of Tech Mahindra Company
Keywords:
Financial performance, Equity, Leverage, capital structureAbstract
This study desired to determine if a significant relationship existed between capital structure and financial performance in Tech Mahindra operating in the IT sector which is listed on the Bombay Stock Exchange (BSE), over a period of 3 years (2016-2018). Panel data Regression was the basis of this analysis. The indicators of capital structure were short-term debt, long-term debt; total equity and total debt, while Return on Equity (ROE) and Return on Assets (ROA) were the performance yardsticks. Various studies that had been conducted earlier mentioned that tax, asset tangibility, risk, inflation and liquidity determined the capital structure of Indian companies. It was to be noted that if these factors were found to have a significant influence on the financing decisions of the company, an analysis of these factors were drawn and the company’s performance were studied. The result after analysis signified that Indian companies performed better when their main focus was on equity and not on debt. It had however been observed that the company did not use its assets optimally and did not have adequate funds to undertake profitable investments. It was a fact that when the tax rates went up along with the inflation, companies relieved their assets in order to cut down its costs. Even though companies possessed this behavior, they had the risk-taking ability which meant that the companies opted for debt even when business risks were high and there were financial constraints.
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