A Study of The Factors Influencing Use of Debt Across Three Industries – Auto & Auto Ancillary, Pharmaceutical and Information Technology Industries

Abstract

The determinants of capital structure have been debated and researched over several years. What influences firms to borrow or use equity sources to fund their business operations and whether these factors differ across industries is the topic of this study. This paper analyses the influence that five independent variables have on the use of debt across three industries. The independent variables selected are asset tangibility, profitability, size, interest cover and growth in revenue and the dependent variable is debt to total assets. The three industries selected are automobile/auto ancillary, pharmaceutical and information technology sectors. These industries were selected as they are quite different in terms of characteristics with respect to fixed asset requirements and use of debt.  The companies were selected from the Nifty 500 list of companies belonging to the automobile/auto ancillary, pharmaceutical and information technology sectors. and data for the years 2013 to 2021 has been considered. Mean values, Correlation and Multi Linear Regression analysis were studied. The result showed that the use of debt across the three industries selected differed and that asset tangibility was found to have a positive influence on the use of debt and profitability had a negative influence on the use of debt for the automobile/auto ancillary and pharmaceutical industries.