Ownership Structure and Capital Structure: Evidence from Indian Firms

Abstract

This paper examines the cross sectional variation in the capital structure of 1314 Indian firms from the ownership structure perspective. Ownership structure is defined as promoters' shareholding and institutional investors' shareholding. The study finds a negative relationship between the variables ownership structure and capital structure. This could be because the average promoters' shareholding for the sample firms is around 50%. Hence, the concentration of the promoters' shareholding increases the risk of the promoters and prompts them to reduce the assumption of financial risk by debt employment. Institutional investors' shareholding and debt are also inversely related. This may be because the institutional investors choose to avoid high debt firms as they have a higher probability of suffering from financial risk in the future.

Keywords: ownership structure, capital structure, corporate finance, concentration of promoters' shareholding.

JEL Classification: G32