Mediating effects of funding strategies and profit maximization: Indian non‐banking finance sector

Abstract

Purpose

The mobilization of funds was severely affected with the linking of their funds mobilization to their internal owned funds. Therefore, the purpose of the study is to identify the mediating effects of funds with profitability and to focus on the funding strategy to maximize profits in the non‐banking financial sector in India.

Design/methodology/approach

The paper discusses various approaches to maximize profits. The study also examines trends in sources of funds using key financial variables. A formative model to capture the mediating effects of funds with profitability is tested using structural equation modeling (SEM) technique. The paper includes various financial variables including external and internal funds. These variables' relationship with the core operating profit is tested in a graphical structural equation environment using package software.

Findings

Mediating effects of borrowings with profitability are established. The paper concludes that the gap in funds can be matched effectively through mobilization of funds of short duration. The study establishes that a combination of fund raising strategies such as flotation of debentures, bank borrowings and short term funding program can affect profits.

Research limitations/implications

The study is confined to non‐bank finance companies in a particular state in India. The geographical and demographical differences may affect generalization. However, care has been taken to match the geographical and demographical characteristics of the country.

Originality/value

The findings of this paper are of immense value for industry managers, lenders and for financial forecasting within the sector. New entrepreneurs can use the findings in their funding plans.

Citation

Thiyagarajan, G. and Arulraj, A. (2012), "Mediating effects of funding strategies and profit maximization: Indian non‐banking finance sector", Journal of Asia Business Studies, Vol. 6 No. 1, pp. 43-59. https://doi.org/10.1108/15587891211191029