Title: Pecking order approach vs. trade-off approach: multifaceted testing of appropriateness for the financing pattern of Indian automobile industry

Authors: Madhu Ruhil; Latika Malhotra; Tara Prasad Upadhyaya; Aarti Dawra

Addresses: Department of Management, Institute of Information Technology and Management, Janak Puri, New Delhi, India ' Department of Management, Institute of Information Technology and Management, New Delhi, India ' Lumbini Banijya Campus, Tribhuvan University, Butwal, Nepal ' Department of Economics, Faculty of Behavioral and Social Sciences, Manav Rachna International Institute of Research and Studies, Faridabad, India

Abstract: This paper investigates the impact of determinants of financial structure on capital structure in the Indian automobile sector post-financial crisis. The paper presents an empirical study using panel data from 11 prominent automobile companies on listed in the Bombay Stock Exchange or National Stock Exchange. The study covers ten years following the financial crisis of 2008-2009, specifically from 2009-2010 to 2018-2019. Correlation analysis and panel data regression models are used to identify the determinants of capital structure in the Indian automobile industry. The study identified five key factors that influence the optimal capital structure in the Indian automobile industry: size, tangibility, growth, debt service capacity, and liquidity. Additionally, this study aims to determine which of the two competing theories, namely the trade-off theory and the pecking order theory, provides a better explanation for the factors determining the capital structure of the Indian automobile sector.

Keywords: capital structure; automobile industry; panel data; pecking order theory; trade-off theory.

DOI: 10.1504/IJPMB.2025.143590

International Journal of Process Management and Benchmarking, 2025 Vol.19 No.1, pp.1 - 21

Received: 01 Sep 2023
Accepted: 06 Sep 2023
Published online: 02 Jan 2025 *

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