IMPACT OF CAPITAL STRUCTURE AND TURNOVER RATIOS ON SHAREHOLDERS’ RETURN: A STUDY OF PHARMACEUTICAL INDUSTRY IN INDIA

Abstract

The study investigated the relationship of capital structure and turnover ratios on shareholders’ returns of National Stock Exchange listed pharmaceutical firms in India during the sixteen year period from 1999 to 2014. Previous studies showed that there is a positive, negative or no relationship of capital structure and turnover on profitability.  The present study used return on assets and return on equity as the measures of shareholders’ returns.  The results revealed that, pharmaceutical companies have higher return on equity and more stable ROA, and the capital structure as well as turnover ratios influence shareholders’ returns in a better way when it is measured as return on asset compared to return on equity.  The study finds that there is negative impact of LTD to Equity on shareholders’ return. Debt equity ratio is said to have significant and negative impact on return on asset and insignificant and positive impact on return on equity. The study reveals that there is found to be insignificant and positive impact of LTD to total assets on shareholders’ returns. Moreover, significant and negative impact of DAR on shareholders’ returns is observed. There is negative and insignificant influence of total assets turnover ratio, and growth rate of total assets is positively and significantly influenced both ROA and ROE. However, the positive impact of SIZE is insignificant with ROA and with ROE. The study also finds that there is insignificant and negative impact of inventory turnover ratio on shareholders’ returns. Receivables turnover ratio is negatively and insignificantly related to ROA and is positively and significantly related to ROE. Total assets turnover ratio has positive and significant impact on shareholders’ returns. There is positive impact of working capital turnover ratio on shareholders’ returns, but it is insignificant.