Determinants of Capital Structure in India (1990-1998): A Dynamic Panel Data Approach

Basudeb Guha‐Khasnobis · Saumitra N. Bhaduri

67 citations0/0 files storedJournal of Economic Integration

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Corporate Finance and Governance Financial Analysis and Corporate Governance Working Capital and Financial Performance

Abstract

Conventional wisdom on capital structure choices has been by and large confined to the United States and a few advanced countries having institutional similarities.In this paper we make an attempt to provide some insight into the capital structure choice of developing countries through a case study of the Indian corporate sector.We develop a dynamic panel data model that explicitly takes into account the possibility of adjustment cost to reach optimal capital structure.The results suggest that restructuring cost is important in adjustment towards an optimal capital structure.We identify the key determinants of the speed of adjustment towards optimal capital structure and also highlight important differences across cohorts formed on the basis of firm-specific attributes.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1984Corporate financing and investment decisions when firms have information that investors do not have 1977Determinants of corporate borrowing 1985Dividend Policy under Asymmetric Information 1979Theory of the Firm: Managerial Behavior, Agency Costs, and Ownership Structure 1980Optimal capital structure under corporate and personal taxation 2001The Debt-Equity Choice 1989Dynamic Capital Structure Choice: Theory and Tests

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