Title: Determinants of capital structure: panel data analysis of Indian firms

Authors: Shikha Bhatia; Aman Srivastava

Addresses: International Management Institute New Delhi, B-10, Qutab Institutional Area, Tara Crescent, New Delhi, 110016, India ' International Management Institute New Delhi, B-10, Qutab Institutional Area, Tara Crescent, New Delhi, 110016, India

Abstract: The purpose of this research is to identify determinants of capital structure in non-financial firms of a developing economy. Using 2,327 firm observations, we examine the determinants of debt-equity choice. The analysis was carried out through ordinary least squares, static panel data, and dynamic panel data (GMM methods) econometric models. The findings reveal that greater profitability, size, business risk, and liquidity causes Indian firms to take less debt whereas the presence of growth opportunities makes them accumulate more debt. The findings of the study are useful for managers in planning their financing decisions. The study points out that capital structure decisions are dynamic, and determinants of short-term debt greatly vary from those of long-term debt. The results offer support to the pecking order theory of capital structure.

Keywords: debt-equity; capital structure theories; pecking order theory; panel data analysis; trade-off theory; generalised method of moment; GMM; dynamic panel.

DOI: 10.1504/IJICBM.2022.122752

International Journal of Indian Culture and Business Management, 2022 Vol.25 No.4, pp.455 - 472

Received: 06 Aug 2020
Accepted: 22 Feb 2021
Published online: 10 May 2022 *

Full-text access for editors Full-text access for subscribers Purchase this article Comment on this article