Title: Dynamics of capital structure: evidence from Indian manufacturing firms

Authors: Yukti Bajaj; Smita Kashiramka; Shveta Singh

Addresses: Department of Management Studies, Indian Institute of Technology (IIT) Delhi, HauzKhas, New Delhi – 110016, India ' Department of Management Studies, Indian Institute of Technology (IIT) Delhi, HauzKhas, New Delhi – 110016, India ' Department of Management Studies, Indian Institute of Technology (IIT) Delhi, HauzKhas, New Delhi – 110016, India

Abstract: An optimal capital structure is the fundamental premise of dynamic trade-off theory. However, firms deviate from the optimal level and display adjustment behaviour. This mechanism is referred to as the speed of adjustment towards the point of optimality and implies an examination of the convergence process towards the optimal level. One of the key issues in manufacturing companies is their leverage ratios (Mukherjee and Mahakud, 2012); hence, we aim to investigate the capital structure dynamics of manufacturing firms in India. Included in this investigation is a sample of 55 Indian manufacturing firms listed on the NSE200 from 2009 to 2016. Based on the dynamic panel data model with system generalised method of moments (GMM) estimation, our findings indicate an adjustment speed for the sample firms of around 25%, with a half-life of nearly 2.4 years.

Keywords: dynamic trade-off theory; leverage; optimal capital structure; dynamic panel data; adjustment speed; system GMM estimation; half-life.

DOI: 10.1504/JGBA.2018.097774

Journal for Global Business Advancement, 2018 Vol.11 No.6, pp.667 - 686

Available online: 06 Feb 2019 *

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