• Dr Gurnam Singh Rasoolpur

This empirical paper makes an attempt to study the panorama of cost of borrowings through a case of Indian corporate sector by classifying the capital structure of sample companies in thirty one ranges and cost of borrowing in seven ranges over a period under study. The study is limited to top 298 firms from different industries out of the list of top 500 manufacturing firms from the Indian corporate sector selected on the basis of turnover for the year 2004-2005 which covers the time span of eleven years commencing from 1995-96 to 2005-06. The study reveals that with the rise in cost of borrowings ranges, the number of companies is moving from higher capital structure ranges towards lower capital structure ranges under the four broader categories of capital structure ranges during the period under study. Overall, rise in cost of borrowings results in the shrinkage of number of capital structure ranges as well as decline in the distribution of companies to the higher capital structure ranges during the period under study. As a result, it emerges that at lower cost of borrowings, there exists higher capital structure ranges and vice-versa, which represents negative relationship between capital structure range and cost of borrowings during the period under study. A firm faces financial distress or even insolvency when it has cash flow and earning problem. Higher cost of borrowings means higher risk of financial distress of contractual obligation of interest and principal repayments. Although debt is a cheaper source of finance, cost of debt is lower than cost of preference share capital as well as equity share capital because interest is an item chargeable to profits of a company but higher cost of borrowings may create earning and cash flow problems. So, as the cost of borrowings increases, the companies start reducing the portion of debt in their capital structure. Thus, it is also concluded that largest number of companies are following conservative approach, very lesser number of companies are following aggressive approach and lesser number of companies are following liberal and safe approach of financing through debt when the cost of borrowing of companies is examined in relation to capital structure over the period under study. It is also found that in our empirical study, only 2.18 percent and 2.20 percent companies are in 190 to 210 percent (1.90:1 to 2.10:1) capital structure range during 1995-96 and 2005-06 which are near to the well established standard range of 200 percent (2:1) when the cost of borrowing of companies is examined in relation to capital structure over the period under study.

Cost of Borrowing, Capital Structure Ranges, Shareholders

"PANORAMA OF COST OF BORROWINGS: AN EMPIRICAL ANALYSIS", International Journal of Emerging Technologies and Innovative Research (www.jetir.org), ISSN:2349-5162, Vol.6, Issue 1, page no.1789-1811, January 2019, Available :http://www.jetir.org/papers/JETIR1901D56.pdf

"PANORAMA OF COST OF BORROWINGS: AN EMPIRICAL ANALYSIS", International Journal of Emerging Technologies and Innovative Research (www.jetir.org | UGC and issn Approved), ISSN:2349-5162, Vol.6, Issue 1, page no. pp1789-1811, January 2019, Available at : http://www.jetir.org/papers/JETIR1901D56.pdf