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International Journal of Contemporary Business Studies Vol: 3, No: 1. January, 2012 ISSN 2156-7506 Available online at http://www.akpinsight.webs.com Malik, Madhu, (2004), “EVA and Traditional Performance Measures: Some Empirical Evidence”, The Indian Journal of Commerce, Vol. 57, No. 2, April-June 2004, pp. 32-37. Pal Singh, Karam and Garg.C. Mahesh, (2004), “Disclosure of EVA in Indian Corporate”, The Indian Journal of Commerce, Vol. 57, No. 2, April-June 2004, pp. 39-49. Panigrahi, Anupam (2005), “Supremacy of Economic Value Added (EVA) Over Market Value Added (MVA)”, ABHIGYAN, Vol. XXIII, No. 1, April-June 2005, pp. 26-35. Parsuraman, and Thamy ( 2000) The IUP Journal of Accounting Research and Audit Practices, 2009, vol. VIII, issue 3-4, pages 52-60 Pattanayak, J.K., Mukherjee, K. (1998), “Adding Value to Money”, The Chartered Accountant, February 1998, pp. 8-12. Ramachandra Reddy, B. and Yuvaraja Reddy, B, (2007), “Financial Performance through Market Value Added (MVA) Approach”, The Management Accountant, January 2007, pp. 56-59. Singh, Prakash (2005), “EVA in Indian Banking: Better Information content, More Shareholder Value”, ABHIGYAN, Vol. XXIII, No. 3, October-December 2005, pp. 40-49 Venkateshwarlu, M. and Nitesh Kumar, (2004), “Value Creation in Indian Enterprises – An Empirical Analysis”, the ICFAI Journal of Applied Finance, Vol. 7, No. 1, December 2004, pp. 18-31 34 Copyright © 2012. Academy of Knowledge Process
International Journal of Contemporary Business Studies Vol: 3, No: 1. January, 2012 ISSN 2156-7506 Available online at http://www.akpinsight.webs.com Leverage Impact on Firms Investment Decision: A Case Study of Indian Pharmaceutical Companies Dr. Amalendu Bhunia Reader, Department of Commerce Fakir Chand College, Diamond Harbour South 24-Parganas – 743331 West Bengal, India ABSTRACT This paper examines the impact of leverage on firm’s investment decision of Indian pharmaceutical companies during the period from 2000 to 2011. To measure the impact of leverage on firm’s investment decision, pooling regression, random and fixed effect models are used by taking, leverage, sales, cash flow, Return on Asset, Tobin’s Q, liquidity and retained earnings as independent variable and investment as dependent variable. The results reveal that there is a significant positive relationship between leverage and investment, while we found a negative relationship between leverage investment for medium firms and positive relationship between leverage and investment in large firms. Keywords: Investment, Tobin’s Q, Liquidity, ROA, Retained Earnings 1. INTRODUCTION Investment is a crucial economic activity in the corporate financial management. Such an activity leads to the country’s economic development provide employment to the people and to eliminate poverty. This paper examines the effort of debt financing on the firms investment decision on pharmaceutical industry in India. It plays a significant role in the country’s economic and industrial development and trade and to prevent diseases’ for increasing the life of people. This industry is providing a basic material to other industrial sectors. It requires capital for financing firm’s assets. Among the different sources of fund, debt is a cheaper source because of its lowest cost of capital. The investment decision of the firm is of three categories that can be adopted by firm’s management besides the financing decision and the net profit allocation decision. The investment structure, more over in their degree of liquidity and consists of spending the financial funds for the purchase of real and financial assets for the firm. The investment decision and the financing decision are interdependent that is the investment decision is adopted in relation to the level of financing source but the option to invest is also crucial in order to calculate the level of financing capitals and the need for finding their sources. As far as the hierarchy of financing sources as it exists in the economic literature, is concerned, cash flow is the cheapest financing sources followed by debts and in the end, by its issuing of new shares. Debts can be cheaper than the issue of new shares because the loan contract the issue of new shares because the loan contract information problem. Giving the fact the 35 Copyright © 2012. Academy of Knowledge Process
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