International Journal of Management (IJM), ISSN MANAGEMENT 0976 0976 INTERNATIONAL JOURNAL OF (2013) 6502(Print), ISSN (IJM) 6510(Online),

), Volume 4, Issue 1, January- February

ISSN 0976-6502 (Print) ISSN 0976-6510 (Online) Volume 4, Issue 1, January- February (2013), pp. 190-196 IAEME: www.iaeme.com/ijm.asp Journal Impact Factor (2012): 3.5420 (Calculated by GISI) www.jifactor.com

IJM
IAEME

CAPITAL STRUCTURE EFFICIENCY OF CEMENT INDUSTRY IN TAMIL NADU

Dr.V.Sarangarajan1, Dr.S.A.Lourthuraj2, Dr.A.Ananth3 Director, Christhuraj Institute of Management, Panjappur, Trichy- 620 012 Asst.Professor, Jamal Institute of Management,Jamal Mohammed College, Trichy-20 3 HOD, Dept.of Management Studies, C.K.College of Engg.& Technology,Cuddalore 03
2 1

ABSTRACT Capital structure is a combination of debt and equity of companies. Capital structure is most significant discipline of companys operations. The researchers carried out the study with the objective of finding out the capital structure management efficiency of cement industry in Tamil Nadu. Ten years data has been employed in this study from 1996-97 to 2005-2006. To find out the capital structure management efficiency the authors employed DEA by an application of KonSI DEA Analysis for Benchmarking Software Professional Version. The authors found that the result of increase in interest cost and costly unsecured loan affected these companies capital structure. Internal funds mobilization, right issue, and higher internal accrual will help the companies to sustain decent bottom-line. Key words: Debt, Equity, Capital Structure, Data Envelopment Analysis, cement industry I. INTRODUCTION Capital Structure is a combination of debt and equity capital maintained by a firm. Capital structure is also called as financial structure of a firm. A company's proportion of short and long-term debt is considered when analyzing capital structure. Most of the authors used debt-to-equity ratio for evaluating capital structure, which provides insight into how risky a company is. Usually a company more heavily financed by debt poses greater risk, as this firm is relatively highly levered. B.Nimalathasan & Valeriu Brabete (2010) pointed out capital structure and its impact on profitability: a study of listed manufacturing companies in Sri Lanka. The analysis shows that Dept equity ratio is positively and strongly associated to all profitability ratios (Gross Profit, Operating Profit & Net Profit Ratios). DEA measures efficiency of a Decision Making Unit (DMU) by maximizing the ratio of weighted outputs over weighted inputs. This ratio is normalized according to best practical peers and efficiency
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International Journal of Management (IJM), ISSN 0976 6502(Print), ISSN 0976 6510(Online), Volume 4, Issue 1, January- February (2013) is calculated to be between 0 and 1, as 1 representing efficient unit. In this research the authors make use of DEA in cement industry to find out the Capital Structure Management efficiency. II. REVIEW OF LITERATURE Chakraborty (2010) employed two performance measures, including ratio of profit before interest, tax and depreciation to total assets and ratio of cash flows to total assets and two leverage measures, including ratio of total borrowing to assets and ratio of liability and equity, and reported a negative relation between these ones. Ebaid (2009) investigates the impact of capital structure choice on performance of 64 firms from 1997-2005 in the Egyptian capital market. He employs three accounting based measures including ROA, ROE and gross profit margin, and concludes capital structure choices, generally, has a weak to- no impact on firm performance. Ong Tze San and Boon Heng Teh (2011) focused on construction companies which are listed in Main Board of Bursa Malaysia from 2005-2008, the result shows that there is a relationship between capital structure and corporate performance and there is also evidence that shows that no relationship between the variables have been investigated. Puwanenthiren Pratheepkanth. (2011) analyzed the capital structure and its impact on financial performance capacity during 2005 to 2009 of Business companies in Sri Lanka. The results shown the relationship between the capital structure and financial performance is negative. Saad (2010). The argument about the capital structure started in the early of 1950 Chakra borty (2010) suggested that in the perfect market, financing strategies do not affect the value of the firm, but later they argue that firm value can be increased by changing the capital structure because of tax advantage of debts Modigliani and Miller (1963). Ali Saeedi and Mahmoodi (2011)examines the relationship between capital structure and firm performance the study used sample of 320 firms listed on Tehran Stock exchange over the period 2002- 2009. Expect all of the financial companies and banks, the study uses four performance measures (including ROA, ROE, EPS and Tobins Q) as dependent variable and three capital structures (including long- term debt short term debt and total debt ratio) as independent variable. The study indicated that firm performances, which is measured by EPS and Tobins Q, is significantly and positively associated with capital structure, while reported a negative relation between capital structure and ROA, and no significant relationship between ROE and Capital structure. Zertun and Tian (2007) investigated the effect which capital structure has had on corporate performance using a panel data sample representing of 167 Jordanian companies during 1989- 2003. The study showed that a firms capital structure had significantly negative impact on the firms performance measures, in both the accounting and markets measures. Chen and Manso (2010) emphasize that incorporating macroeconomic risk can increase agency costs of debt substantially. Morellec and Schuerhoff (2011) focus on the implications of asymmetric information on the financing and timing of corporate investment. Hackbarth and Mauer (2011) study the relation between the priority structure of corporate debt and firms' investment and financing decisions. Nadeem and Wang (2010) investigate the influencing factors on capital structure decisions. They find positive significant relationship between capital structure and firms size.
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International Journal of Management (IJM), ISSN 0976 6502(Print), ISSN 0976 6510(Online), Volume 4, Issue 1, January- February (2013) III. METHODOLOGY The pooled data collection is to assess the impact of regulation on performance of cement companies in Tamil Nadu over the time horizon viz., 1996-97 to 2005-06. The approach to macroeconomic variables is time series. The design of the study is based on the secondary sources of information on financial data. The secondary data is practically, a quantitative method that requires standardized information in order to define or describe variables or to study the relationships between the variables. The data was tested for suitability using simple statistical tools such as standard deviation, standard error of the sample. Due to non- accessibility of sensitive company data, the effect of window dressing could not be ascertained. However , Data was accepted as these were frequently inspected by SEBI and Institute of Charted Accountants of India . The study, it was felt, will be useful if the random sample drawn from the population of cement industry in the state of Tamil Nadu. T he present study includes India Cements Limited (ICL), Dalmia Cement (Bharat) Limited (DCL), Madras Cements Limited (MCL) and Chettinadu Cement Corporation Limited (CCCL). Data first analyzed and experimented using nonparametric econometric Data Envelopment Analysis (DEA) programming approach for Scale efficiency. IV. RESULTS AND DISCUSSION Table 1.Capital Structure Efficiency Score of India Cements Limited, Dalmia Cement (Bharat) Limited, Madras Cements Limited, Chettinadu Cement Corporation Limited and Sample Total of cement industry in Tamil Nadu. Efficiency Scores ICL DCL MCL CCCL Sample Year/ Industry Company 1.0000 1.0000 1.0000 0.9163 0.9508 1996 0.9271 0.7014 0.7227 1.0000 1.0000 1997 1.0000 0.7476 0.9199 1.0000 1.0000 1998 0.5561 0.8036 1.0000 0.7595 0.5358 1999 0.5424 0.7584 0.9058 0.8756 0.5385 2000 0.4913 0.7987 0.7936 1.0000 0.4912 2001 0.3836 1.0000 0.5022 0.5931 0.4195 2002 1.0000 0.5258 0.7321 0.3524 0.3448 2003 1.0000 1.0000 0.5760 0.6122 0.8752 2004 0.9925 0.5781 1.0000 0.6235 0.6276 2005 Inputs: Secured Loan,Un Secured Loan and Current Liabilities Output: Share Holders Wealth Model : output oriented model Scale : Constant returns- to- Scale Source: Published Annual Reports of the companies, KonSI DEA Analysis for Benchmarking Software Professional Version.

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International Journal of Management (IJM), ISSN 0976 6502(Print), ISSN 0976 6510(Online), Volume 4, Issue 1, January- February (2013) 1. Capital Structure Efficiency of India Cements Limited (ICL) Table 1 and Bar chart in figure 1 reveal the efficiency scores of ICL. The efficient years (1996, 1998 and 2004) have scores one. DEA measures efficiency of a Decision Making Unit (DMU) by maximizing the ratio of weighted outputs over weighted inputs. This ratio is normalized according to best practical peers and efficiency is calculated to be between 0 and 1, as 1 representing efficient unit. The value 0.3448 is the inefficient score of the year 2003 means that its output can simultaneously be increased by a factor of 190.02%. From the Data Envelopment Analysis , the conclusion drawn that the ICL has efficiently utilized their debts like secured loan, unsecured loan and current liabilities to maximize the return in the form of shareholders fund except during the years 1997,1999-2003 and 2005 . The Data Envelopment Analysis states that the ICL is also not that much efficient company in so for as Capital Structure efficiency is concerned. Cost of funds is playing an important role in inefficient capital structure management. Fig.1. Capital Structure Efficiency of India Cements Limited (ICL)
Efficie ncy s cor e of India ce me nts limite d
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0.8 efficiency score

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2. Capital Structure Efficiency of DalmiaCement (Bharat) Limited (DCL) Table 1 and Bar chart in figure2 reveal efficiency scores of DCL. The efficient years (1996, 2002, 2003 and 2004) have scores one. The value 0.5781 is the inefficient score of the year 2005 means that its output can simultaneously be increased by a factor of 72.98%. From the above Data Envelopment Analysis, the conclusion drawn that, the DCL has efficiently utilized their debts like secured loan, unsecured loan and current liabilities to maximize the return in the form of shareholders fund except during the years 1997, 1997-2001 and 2005. The Data Envelopment analysis states that the DCL is also had least efficient company in so for as capital structure efficiency is concerned. Cost of funds is playing an important role in debt efficiency.

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International Journal of Management (IJM), ISSN 0976 6502(Print), ISSN 0976 6510(Online), Volume 4, Issue 1, January- February (2013) Fig.2. Capital Structure Efficiency of DalmiaCement (Bharat) Limited (DCL)
E f fic ie n c y o f D a lm ia C e m e n t ( B h a r a t) L im ite d
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0 .8 Efficiency Score

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3. Capital Structure Efficiency of Madras Cements Limited (MCL) Table 1 and Bar chart in figure 3 reveal the efficiency scores of MCL. The efficient years (1996, 1999 and 2005) have scores one. The value 0.5022 is the inefficient score of the year 2002 means that its output can simultaneously be increased by a factor of 99.98% From the above Data Envelopment Analysis, the conclusion drawn that the MCL has efficiently utilized their debts like secured loan, unsecured loan and current liabilities to maximize the return in the form of shareholders fund except during the years 1997, 1998 and 2000-2004. The Data Envelopment Analysis clearly states that the MCL is also had less efficient company in so for as capital structure efficiency is concerned. Cost of funds is playing an important role in debt management. Fig.3. Capital Structure Efficiency of Madras Cements Limited (MCL)
E ff ic i e n c y S c o r e o f M a d r a s C e m e n ts L im ite d
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International Journal of Management (IJM), ISSN 0976 6502(Print), ISSN 0976 6510(Online), Volume 4, Issue 1, January- February (2013)
4. Capital Structure Efficiency of Chettinadu Cement Corporation Limited (CCCL) Table 1 and Bar chart in figure 4 reveal the efficiency scores of CCCL. The efficient years (1997, 1998 and 2001) have scores one. The value 0.5931 is the inefficient score of the year 2003 means that its output can simultaneously be increased by a factor of 68.60% From the above Data Envelopment Analysis, the conclusion drawn that, the CCCL has efficiently utilized their debts like secured loan, unsecured loan and current liabilities to maximize the return in the form of shareholders fund except during the years 1996, 1999, 2000, and 2002 - 2005. Fig.4. Capital Structure Efficiency of Chettinadu Cement Corporation Limited (CCCL)
E ffic ie n c y S c o r e o f C h e tti n a d u C e m e n t C o r p o r a tio n L im ite d
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0 .8 Efficiency Score

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5. Capital Structure Efficiency of Cement Industry in Tamil Nadu Table 1 and Bar chart in figure 5 reveal efficiency score of sample total of cement industry in Tamil Nadu. The efficient years (1997 and 1998) have scores one. The value 0.3524 is the inefficient score of the year 2003 means that its output can simultaneously be increased by a factor of 183.76%. From the above Data Envelopment Analysis, the conclusion drawn that, the cement industry in Tamil Nadu has efficiently utilized their debts like secured loan, unsecured loan and current liabilities to maximize the return in the form of shareholders fund except during the years 1996, and 1999 - 2005. Fig.5. Capital Structure Efficiency for the Sample Total of Tamil Nadu Cement Industry
E ffic ie n c y fo r th e S a m p le T o ta l o f T a m il N a d u C e m e n t In d u s tr y
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0 .8 Efficiency Score

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International Journal of Management (IJM), ISSN 0976 6502(Print), ISSN 0976 6510(Online), Volume 4, Issue 1, January- February (2013) V. CONCLUSION From the above Data Envelopment Analysis, the conclusion drawn that, the cement industry in Tamil Nadu efficiently utilized their debts like secured loan, unsecured loan and current liabilities to maximize the return in the form of shareholders fund except during the years 1996 and1999-2005. This can be seen through raise in secured loan as resulted in fall in unsecured loan and vice versa till 2000. There has been increase the level of secured loan mobilized which has declined in operation and high cost unsecured loan moreover restriction on public deposits mobilization. The inefficient operations can be seen through declining profit. The high negative bottom-line during 2003 and 2004 is result of increase in interest cost and costly unsecured loan. Internal funds mobilization, right issue, and higher internal accruals will help the companies to sustain decent bottom-line. REFERENCES
1) Ali Saeedi and Iman Mahmoodi, 2011. Capital Structure and Firm Performance: Evidence from Iranian Companies. International Research Journal of Finance and Economics. 2) Banker RD, Charnes A, Cooper WW (1984). Some Models for Estimating Technical and Scale Inefficiency in Data Envelopment Analysis. Manage. Sci., 30(9):1078-1092. 3) Chakraborty, I., 2010. Capital structure in an emerging stock market: The case of India, Research in International Business and Finance, Vol. 24, pp. 295-314. 4) Charnes A, Cooper WW, Rhodes E (1978). Measuring the Efficiency of Decision Making Units. Eur. J. Oper. Res., l: 2(6):429-444. 5) Chen, H., and G. Manso, 2010, Macroeconomic risk and debt overhang, Working Paper, MIT. 6) Ebaid, E. I., 2009. The impact of capital-structure choice on firm performance: empirical evidence from Egypt, The Journal of Risk Finance, Vol. 10, No. 5, pp. 477-487 7) Hackbarth, D., and D. Mauer, 2011, optimal priority structure, capital structure, and investment, forthcoming, Review of Financial Studies. 8) Modigliani, F. F. & Miller, M. H. (1963). Corporation income taxes and the cost of capital: acorrection. American Economic Review, 53(3), 433443. 9) Morellec, E., and N. Schuerhoff, 2011, corporate investment and financing under asymmetric information, Journal of Financial Economics 99: 262-288. 10) Nadeem, A. and Wang, Z. 2010. Financing Behavior of Textile Firms in Pakistan. International Journal of Innovation, Management and Technology, Vol. 1, No. 2, June2010130-135. 11) Nimalathasan, B., Valeriu B., 2010 Capital Structure and Its Impact on Profitability: A Study of Listed Manufacturing Companies in Sri Lanka (2010), Revista Tinerilor Economist/The Young Economists Journal 13,55-61 12) Ong Tze San and Boon Heng Teh. 2011. Capital Structure and Corporate Performance of Malaysian Construction Sector. International Journal of Humanities and Social Science, 1(2):28-36. 13) Puwanenthiren Pratheepkanth, 2011. Capital Structure and Financial Performance: Evidence from Selected Business Companies in Colombo Stock Exchange Sri Lanka. Journal of Arts, Science & Commerce. 14) Saad, N. M. (2010). Corporate Governance Compliances and the Effects to capital Structure. International Journal of Economics and Financial, 2(1), 105-114. 15) Zeitun, R. and Tian, G., 2007. Capital structure and corporate performance: evidence from Jordan, Australasian Accounting Business and Finance Journal, Vol. 1, pp. 40-45 16) Jyotsna Ghildiyal Bijalwan, Corporate Governance System In India International

Journal of Management (IJM), Volume 3, Issue 2, 2012, pp. 260-269, Published by IAEME.

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