Capital structure, competitive intensity and firm performance: an analysis of Indian pharmaceutical companies

Abstract

Purpose

This research paper aims to explore the relationship of financial performance and capital structure of Indian pharma firms of BSE 500, the impact of research and development (R&D) expenditure on financial performance and also explore the moderating role of competitive intensity between the existing relationship of capital structure and firm performance.

Design/methodology/approach

The balanced panel data of listed pharma firms of BSE 500 are used for the research study, and the present study adopts both the panel and ordinary least square (OLS) estimation techniques to draw the results.

Findings

The results exhibit that the high debt ratio is harmful for the accounting performance of the selected sample of pharma firms of BSE 500. Besides, market competition negatively moderates the relationship between capital structure and firm performance.

Research limitations/implications

The research findings provide evidence for the policymakers/regulators that the sample firms should discourage the high debt financing in the presence of competitive intensity in the product marketplace.

Originality/value

The core contribution of the current research is to examine impact of R&D expenditure on financial performance and the moderating role of market competition on the relationship of capital structure and firm performance to the best of the authors' knowledge, and no single study has previously explored this relationship in the context of BSE 500 pharma firms.

Citation

Mathur, N., Tiwari, S.C., Sita Ramaiah, T. and Mathur, H. (2021), "Capital structure, competitive intensity and firm performance: an analysis of Indian pharmaceutical companies", Managerial Finance, Vol. 47 No. 9, pp. 1357-1382. https://doi.org/10.1108/MF-01-2020-0009