INFLUENCE OF CAPITAL GEARING ON FIRM VALUE EMPIRICAL EVIDENCE FROM INDIAN TRANSPORT & LOGISTICS SECTOR
INFLUENCE OF CAPITAL GEARING ON FIRM VALUE
EMPIRICAL EVIDENCE FROM INDIAN TRANSPORT & LOGISTICS SECTOR
ABSTRACT
The transport and logistics sector is an essential contributor for the development of a country. Since the new economic reforms initiated in 1991, the transportation infrastructure of India has witnessed a paradigm change. The need for transport & logistics services grew at an annual rate of 10%, in the last decade the demand in the transport and logistics sector grew along with the accelerating Indian GDP. This development augmented the demand for capital investment by firms’ to enhance the transport & logistics infrastructural facilities to support the growth of manufacturing, trading and service sector of Indian economy. Generally transport & logistics sector firms’ are capital intensive and require substantial commitment of capital resources in order to function efficiently. The objective of this research paper is to determine whether in Indian transport & logistics sector an increase in capital gearing positively or negatively influences the firm value. This research paper has used secondary data sourced from the money control database for the period 2001-2012. The sample firms selected for this research paper were listed on BSE & NSE and firms were stratified into transport & logistics sector. The present study employed correlation and regression tests to prove the postulated hypothesis using SPSS to ascertain the influence of capital gearing on firm value. Finally, the overall findings indicate that there is no significant influence of capital gearing on firm value. The study also concludes that there might be other non- quantitative factors which may lead to nullify the influence of capital gearing on firm value.
KEYWORDS: Transport & Logistics, Capital Gearing, Firm Value, Capital Structure, Regression Analysis, Stakeholders etc.
JEL CLASSIFICATION: G31, G32, G39
INTRODUCTION
Capital Gearing & Firm Value:
Capital gearing
EMPIRICAL EVIDENCE FROM INDIAN TRANSPORT & LOGISTICS SECTOR
ABSTRACT
The transport and logistics sector is an essential contributor for the development of a country. Since the new economic reforms initiated in 1991, the transportation infrastructure of India has witnessed a paradigm change. The need for transport & logistics services grew at an annual rate of 10%, in the last decade the demand in the transport and logistics sector grew along with the accelerating Indian GDP. This development augmented the demand for capital investment by firms’ to enhance the transport & logistics infrastructural facilities to support the growth of manufacturing, trading and service sector of Indian economy. Generally transport & logistics sector firms’ are capital intensive and require substantial commitment of capital resources in order to function efficiently. The objective of this research paper is to determine whether in Indian transport & logistics sector an increase in capital gearing positively or negatively influences the firm value. This research paper has used secondary data sourced from the money control database for the period 2001-2012. The sample firms selected for this research paper were listed on BSE & NSE and firms were stratified into transport & logistics sector. The present study employed correlation and regression tests to prove the postulated hypothesis using SPSS to ascertain the influence of capital gearing on firm value. Finally, the overall findings indicate that there is no significant influence of capital gearing on firm value. The study also concludes that there might be other non- quantitative factors which may lead to nullify the influence of capital gearing on firm value.
KEYWORDS: Transport & Logistics, Capital Gearing, Firm Value, Capital Structure, Regression Analysis, Stakeholders etc.
JEL CLASSIFICATION: G31, G32, G39
INTRODUCTION
Capital Gearing & Firm Value:
Capital gearing
References: 1. Benjamin, M. Friedman (1985). Corporate Capital Structures in the United States: Investment Patterns and Financial Leverage. University of Chicago Press. Volume ISBN: 0-226-26411-4. (p. 325 - 352). Chapter Author: Michael S. Long; Ileen B. Malitz 2 3. Ehrhardt, M.C., and Brigham, E.F. (2003) Corporate Finance – A focused approach. Fama, E., and French, K. (1988) Taxes, financing decisions and firm value. The journal of finance, 53(2), 819-844. 4. Fama, E., and French, K. (2002) Testing trade-off and pecking order predictions about dividends and debt. Te review of financial studies, 15(1). 1-33 5 6. Fama, E., and Miller M.H. (1972) The story of Fiance. Holt, Rinerhart and Winston 7 8. Harris, M., and Raviv, A. (1990) Capital Structure and the information role of debt. Journal of Finance, 45, 321-349 9 10. Hovakimian, A., Opler, T., Titman, S. (2001) The Debt-Equity choice. Journal of Financial and Quantitative Analysis, 36(1), 1-24 11 12. Jensen, M.C. (1986) Agency cost and free cash flow, corporate finance and takeovers. American Economic Review, 76,323-339 13 14. Kim E.H. (1978) A Mean-Variance Theory of optimal capital structure and corporate debt capacity. The journal of Finance, 33(1), 45-63 15 16. Mandelker, G. and Rhee, S. (1984). The Impact of the Degrees of Operating and Financial Leverage: A Systematic Risk of Common Stock. Journal of Financial and Quantitative Analysis. March, 45-50. 17 18. Modigliani, F. and Miller, M. (1963) Corporate Income Taxes and the cost of capital: A correction. The American Economic Review, 53(3), 433-444 19 20. Myers, S.C. (1984) The capital structure puzzle. The Journal of Finance, 39(3), 575-592 21 22. Myers, S.C. and Majluf, N.S. (1984) Corporate Financing & investment decisions when firms have information and investors do not have. Journal of Financial Economicthe great, 13(2), 187-221 23 24. Pandey, I.M. (2007). Financial Management. New Delhi: Vikas Publishing. 25. Porter, M.E. (2003) competitive strategy, techniques for analyzing industries and competitors. New York: Free Press 26 27. Ross, S.A. (1977) The determination of financial structure: the incentive-signaling approach. The bell journal of economics, 8(1), 23-41 28 29. Sharma, A.K. (2006) Financial Leverage and firm’s value: A study of capital structure of selected mfg sector firms in India. The business review, Cambridge, 6(2), 70-76 30 31. Stern J.M. (1970) The case against maximizing earnings per share. Financial analysts journal, September-October, 107-112 32 33. Ward, M. and Price. A, (2006) Turning Vision into Value. Pretoria: Van Schaik publishers