Title: A study of capital structure dynamics on the value of Indian firms using panel threshold regression model

Authors: Sakshi Khanna; Amit Srivastava; Yajulu Medury

Addresses: Department of Humanities and Social Sciences, Jaypee University of Information Technology, Waknaghat, Himachal Pradesh, India ' Department of Humanities and Social Sciences, Jaypee University of Information Technology, Waknaghat, Himachal Pradesh, India ' Higher Education, Bennett, Coleman and Co. Ltd., New Delhi, India

Abstract: Debt is advantageous for the firm only up to a certain point (i.e. threshold) because beyond that there could be debt overhang or worse, bankruptcy. Therefore, the present study aims to explore the dynamics of capital structure of Indian firms. It has two objectives: first, to test the existence of the optimal or 'threshold' level of debt and if it exists, then to determine that level; second, to study the same effect when the firms are categorised into the three sectors - primary, secondary and tertiary. This is a balanced panel study of the firms, which are listed on the Bombay Stock Exchange; the period of study being 1993-2013. It uses the panel threshold regression model developed by Hansen in 1999 and is run on the open-source software - gretl. The finding shows that in case of all firms' data there exists no threshold effect; however, there exists an inter-sectoral variation.

Keywords: capital structure dynamics; firm value; debt overhang; bankruptcy; asymmetric nonlinear relationships; India; panel threshold regression modelling; open source software OSS; inter-sector variation.

DOI: 10.1504/IJMP.2016.074887

International Journal of Management Practice, 2016 Vol.9 No.1, pp.40 - 55

Received: 29 Sep 2015
Accepted: 12 Nov 2015
Published online: 22 Feb 2016 *

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