IMPACT OF CAPITAL STRUCTURE ON ECONOMIC VALUE ADDED (A COMPARATIVE STUDY OF SELECT CEMENT COMPANIES IN INDIA)

Abstract

Several studies have attempted to study the impact of important financial variables on economic value added of a firm. The present study attempts to study the impact capital structure on economic value addition of select cement companies in India. The study considers D/E ratio as proxy for capital structure of select cement companies. Further, the study also aims at examining the relationship capital structure (D/E ratio) and other important financial variables such as Cost of equity, and overall Cost of capital. The important findings of the study are as under;

1. D/E ratios of all the cement companies have positive relationship with cost of equity.


2. Overall cost of capital has negative relationship with D/E ratio of select cement companies under study


3. Relationship between D/E ratio which is a proxy for capital structure and Economic value added of select cement companies has a negative relationship i.e. ‘r’, coefficient of correlation computed for all the firms of select industry over the study period is negative. This implies that capital structure and EVA has inverse relationship.