What Determines Capital Structure of Listed Firms in India?: Some Empirical Evidences from The Indian Capital Market

Abstract:     
This paper examines the relative importance of six factors in the capital structure decisions of publicly traded Indian firms. Existing empirical research on capital structure has been largely confined to developed countries. The papers related to emerging economies usually group several countries together. The Indian Financial Market has been developing at an exponential rate and dedicated research in the field in required. The paper utilises a larger data set in comparison to the earlier studies on India and examines additional factors. We use over 135 firms in the period of 1990-2009 listed on the Bombay Stock Exchange (aka as Mumbai Stock Exchange). The objective of this paper is to build on previous studies on the Indian capital market and model all the important factors affecting capital structure decisions of Indian firms post liberalization policy by Govt of India. I find that factors such as tangibility of assets, growth, firm size, business risk, liquidity, and profitability have significant influences on the leverage structure chosen by firms in the Indian context.

Number of Pages in PDF File: 25

Keywords: Capital Structure, Indian Financial markets, Mumbai, pecking order, trade off, corporate finance

JEL Classification: G15, G32

working papers series