Capital Structure Decisions of Indian Corporate: Theory vs. Practice
JM International Journal of Management Research, p. 231, 2011
15 Pages Posted: 20 Oct 2013 Last revised: 22 Oct 2013
Date Written: March 31, 2011
Abstract
Background: Since the liberalization of Indian economy, there has been an upsurge in research on company finance, particularly aimed at understanding how companies finance their activities and why they finance their activities in these specific ways. In practice, it is observed that finance managers use different combinations of debt and equity. Hence, it needs to be investigated that how Indian finance managers decides the financing mix, whether all finance managers follow the same principle and if so, than why?
Objectives: The present study is aimed at to understand the basis of capital structure decisions of Indian companies and find out the extent to which it matches with the theory.
Methodology: We propose to analyze the financing pattern of 300 Indian private sector companies, comprising of 20 different sectors for the period 1999-2000 to 2007-2008, duly grouping them on the basis of their region, size, age, and nature etc.
Findings/Results: In this study, we have tried to find out the ways in which different companies at different times and in different institutional environments have financed their operations; and to identify possible implications of these financing patterns. The central issue we have addressed is to examine the factors that influence the capital structure decisions of Indian companies and check whether the theories of capital structure are followed practically or not.
Keywords: Capital Structure, Trade-off, Agency cost, Indian Corporate, Pecking order
JEL Classification: G32
Suggested Citation: Suggested Citation