Title: Influence of stock return volatility on corporate leverage: evidence from an emerging economy

Authors: Pankaj Chaudhary

Addresses: Department of Finance and Business Economics, University of Delhi, Delhi – 110021, India

Abstract: Volatility is an essential aspect of the field of finance. It reflects the firms' risk and is always considered in personal finance. However, it is largely ignored in corporate finance. We attempt to examine the role of stock return volatility on the corporate leverage of Indian firms. We use the GARCH(1, 1) model to measure the stock return volatility, in addition to the simple standard deviation. We use the dynamic panel data methodology to deal with endogeneity issues. This paper considers three book-value-based leverages, namely short-term debt, long-term debt and total debt; in addition, two market-value-based leverages, i.e., total market leverage and long-term market leverage, are also employed in this study. We find that the stock return volatility negatively influences all three measures of book value leverage. Further, we observed that volatility is negatively and significantly associated with market-based leverage.

Keywords: leverage; stock return volatility; GARCH; GMM; risk.

DOI: 10.1504/GBER.2024.137695

Global Business and Economics Review, 2024 Vol.30 No.3, pp.329 - 347

Received: 31 May 2022
Accepted: 08 Nov 2022
Published online: 02 Apr 2024 *

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