Determinants of Capital Structure in the Indian Cement Sector


Published: 2021-05-21

Page: 203-210

April Bhattacharjee

Alliance School of Business, Alliance University, India.

Mihir Dash *

Alliance School of Business, Alliance University, India.

*Author to whom correspondence should be addressed.


The objective of this study is to examine the determinants of capital structure in the Indian cement sector and, accordingly, the applicability of capital structure theories for the Indian cement sector. The sample considered for the study consisted of twenty-five companies from the cement industry, over the study period 2003-2011. The determinants considered included the Collateralizable Value of Assets, the Non-Debt Tax Shield, the Size, Profitability, and Growth Opportunities of the sample companies. The dependent variable is the leverage ratio, i.e. the ratio of debt to capitalization ratio. The analysis was performed using pooled regression (OLS), and panel regression (GLS fixed-effects and random-effects) modeling. The results of the study suggest that capital structure in the Indian cement sector is determined primarily by two factors: Collateralizable Value of Assets and Profitability. In particular, Financial Leverage was found to be significantly positively related with Collateralizable Value of Assets, and significantly negatively related with Profitability. Unfortunately, the results of the study do not support either the Static Trade-Off theory or the Pecking Order theory entirely. Thus, in a highly capital-intensive industry as the cement industry, companies prioritize their sources of financing, preferring internal funds, followed by debt, and finally equity issues, for financing their projects.

Keywords: Capital structure, debt financing, equity financing, modigliani and miller’s theory, static trade-off theory, pecking order theory, agency cost theory.

How to Cite

Bhattacharjee, A., & Dash, M. (2021). Determinants of Capital Structure in the Indian Cement Sector. Asian Journal of Economics, Finance and Management, 3(1), 203–210. Retrieved from


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