Capital Structure and Financial Performance - An Empirical Evidence from the Indian IT Sector

The study investigated the impact of capital structure decisions on the financial performance of the selected Indian IT firms. The analysis based on the fixed and random effect regression model using panel data collected for the period 2008 to 2019 of 43 selected Indian IT companies listed in the Bombay Stock Exchange. Financial performance is measured using six measures such as; Earning per Share (EPS), Return on Assets (ROA), Return on Equity (ROE), Return on Capital Employed (ROCE), Net Profit Margin (NPM) and Gross Profit Margin (GPM). Long Term Debt to Capital (LTDC), Total Debt to Capital (TDC) and Debt-Equity Ratio (DER), are used as the Capital structure proxies. It was concluded that DER has a strong and negative impact on ROE and GPM of the IT firms in India. TDC and LTDC have a strong positive impact on ROCE and ROE respectively. Furthermore, financial leverage has an adverse effect on ROA, EPS and ROCE. Similarly, Asset Tangibility has a significantly negative impact on EPS and NPM whereas, firms’ size is positively and firms’ age is negatively related to financial performance. The study has provided a fair picture of the available literature on the specific subject and also offers an insight into the capital structure and profitability of the Indian IT sector. Further, it has also suggested measures to improve financial performance by strategically restructuring the capital of the Indian IT industries