Enhancing Capital Structure to Impact Profitability: The Case of Software Industry

Abstract

Capital structure choices have become progressively crucial for businesses in the rapidly devolving software industry. This study examines the impact of capital structure within the software field using a panel data model. The research includes data from 22 firms over the period 2013-2022 obtained from annual reports. The regression analysis is built with four independent variables (assets, debt-assets ratio, debt-equity ratio, and age) and one dependent variable, Return on Assets. The outcomes show that all selected regressors are statistically significant, but only assets and the debt-to-assets, and debt-to-equity ratio have the expected direction. The results highlight the importance of avoiding generalized approaches to capital structure decisions, urging firms instead to conduct exhaustive valuations of the costs and benefits associated with different capital sources. This tactical approach can help managers guarantee profitability in their operations.