Capital Structure, Equity Ownership and Firm Performance: Evidence from India

Abstract:     
This study investigated the relationship between capital structure, equity ownership and firm performance using a sample of 438 BSE-Listed Indian companies over the period of five years (2005-2010). The study constructs efficiency through data envelopment analysis (DEA). Using panel data analysis to examine the effect of efficiency on leverage and the empirical validity of the two competing hypotheses such as efficient risk hypothesis and franchise value hypothesis. The study results were consistent with the Jensen and Meckling (1975) agency cost model and we didn't found any significant impact of efficiency on leverage. There is evidence towards nonlinearities in the relationship between ownership type with capital structure and firms performance. During the study time period the efficiency and the number of efficient companies had been decreasing due to the recession that broke out at mid-2008. During the study time period the efficiency and the number of efficient companies had been decreasing due to the recession that broke out at mid-2008.

Number of Pages in PDF File: 14

Keywords: Capital Structure, Agency Costs, Equity Ownership, DEA Efficiency, India

JEL Classification: D24, G32, C23

working papers series