Title: Testing the pecking order theory of capital structure - focus on Indian growth firms 1991-2009

Authors: Sachin Choudhry; D.S. Meenakshi Sundaram

Addresses: Institute of Management Technology, Raj Nagar, Hapur Road, Ghaziabad 201 001, Uttar Pradesh, India ' National Insurance Company Ltd., Divisional Office No. XVII, No. 12, Community Centre, East of Kailash, New Delhi 110 065, India

Abstract: The pecking order theory, as originally conceived, based its findings on the practices of US corporations. But do companies across the globe follow the pecking order pattern while financing their expansions? This study, therefore, focuses to test the pecking order theory on Indian firms with special emphasis on the high growth Indian firms. The period under study is 1991-2009. Secondary data from CMIE for nine sectors of the economy viz. cement, construction, petroleum, textile, commercial vehicles, fast moving consumer goods, hotel, software and steel have been collated. These sectors were found to be high growth sectors. Specifically, data related to reserves, term debt and assets were correlated. Empirical evidence suggests that the implications of pecking order theory as per Myers (1984) does not quite hold true in the Indian scenario.

Keywords: pecking order theory; capital structure; year-on-year asset growth; year-on-year reserve growth; year-on-year long-term debt growth; year-on-year share capital growth; correlation; India.

DOI: 10.1504/IJICBM.2013.053106

International Journal of Indian Culture and Business Management, 2013 Vol.6 No.3, pp.330 - 350

Published online: 05 Apr 2013 *

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