Impact Of Capital Structure On Financial Performance: A Special Reference To Depressed Companies Applied For Bankruptcy In NCLT

Abstract

There are many important theories and assumptions that explain and study this topic very well, such as: Net Income, Net Operating Income, Traditional, M & M hypothesis and pecking order theory.

We find that the relationship between capital structure and business performance is an interesting aspect and worth exploring. Therefore, we started a thorough literature review and found a research gap showing the relationship between capital structure and financial performance of a company from the perspective of capital structure theories in the Insolvency context. Since researchers are studying the relationship between capital structure and corporate performance in many different countries and there is nothing like insolvency context, we decided to study about it.

Over the past decade, the financial performance of the companies has been negatively affected by their leverage ratio. Specifically, the more debt the company takes on in relation to its assets to finance its operations, the worse the company's financial performance. With this study, we provide more evidence of the relationship between capital structure and financial performance and enlighten contribution in depression of companies.

Our research and analysis indicate that for Indian listed businesses, there is a negative correlation between capital structure and firm performance. Finally, and perhaps most significantly, our findings concur with those of Fama and French (1999) and Myers (1989), both of which discovered a negative correlation between capital structure and business performance.