CAPITAL STRUCTURE AND FIRM PERFORMANCE OF HYDROPOWER COMPANY

Abstract

This research purpose is to examine the relationship between asset tangibility, debt to equity ratio (DER), short-term debt to total assets (STDTA), and the profitability of hydropower companies in Nepal. The study utilizes a causal comparative research design and employs correlation and regression analyses to explore the capital structure and its impact on profitability. The findings reveal that the debt-to-equity ratio exhibits a negative but statistically significant relationship with return on assets (ROA). However, there is a significant positive association between STDTA and ROE, indicating that an increase in short-term debt relative to total assets leads to higher profitability for hydropower companies. Furthermore, the analysis demonstrates a significant negative relationship between asset tangibility (AT) and ROE, suggesting that a higher proportion of tangible assets is linked to lower profitability. These findings provide insights into the capital structure management and profitability dynamics within the hydropower sector in Nepal. The implications of this research suggest the importance of maintaining a balanced capital structure and prudently managing short-term debt levels for hydropower companies. Moreover, optimizing the asset composition by considering the mix of tangible and intangible assets can contribute to enhanced profitability. The study's findings have implications for financial decision-making, policy formulation, and future research directions in the field. Overall, this research project contributes to the understanding of the relationship between capital structure and profitability in the hydropower industry of Nepal, providing valuable insights for stakeholders and policymakers in making informed decisions to maximize profitability and sustainable growth.