Dynamics of capital structure: evidence from Indian manufacturing firms
by Yukti Bajaj; Smita Kashiramka; Shveta Singh
J. for Global Business Advancement (JGBA), Vol. 11, No. 6, 2018

Abstract: An optimal capital structure is the fundamental premise of dynamic trade-off theory. However, firms deviate from the optimal level and display adjustment behaviour. This mechanism is referred to as the speed of adjustment towards the point of optimality and implies an examination of the convergence process towards the optimal level. One of the key issues in manufacturing companies is their leverage ratios (Mukherjee and Mahakud, 2012); hence, we aim to investigate the capital structure dynamics of manufacturing firms in India. Included in this investigation is a sample of 55 Indian manufacturing firms listed on the NSE200 from 2009 to 2016. Based on the dynamic panel data model with system generalised method of moments (GMM) estimation, our findings indicate an adjustment speed for the sample firms of around 25%, with a half-life of nearly 2.4 years.

Online publication date: Fri, 08-Feb-2019

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