The Jigsaw of Capital Structure

Abstract

This research attempts to study the capital structure issue in India in the context of the country’s ongoing economic reforms. The corporate sector in the country is characterized by a large number of firms operating in a largely deregulated and increasingly competitive environment. Since 1990, financial liberalization has changed the operating environment of firms, by giving more flexibility to the Indian financial manager in choosing the capital structure of the firm. However, existing studies on the capital structure issue in India have been conducted in the backdrop of strongly interventionist and regulated regime of the pre-reform period.. The study also has some advantages over earlier studies in the context of the data used. First, most of the existing empirical studies on capital structure in India have been restricted in scope due to the poor cross-sectional variation in data. In contrast, the sample used in this study encompasses a wide range of firms and industries. The financial and qualitative data used in the study is obtained from the database PROWESS of the Center for Monitoring the Indian Economy for a ten year period, 2000-2001 to 2010-2011.

Keywords: Leverage , Debt-Equity , Capital Structure