Location as A Determinant of Capital Structure: A Study of Indian Private Sector Firms

Dr. Ashok Kumar Panigrahi .

Abstract


 Capital structure of a firm is determined by various internal and external factors. The macro variables of the economy of a country like tax policy of government, inflation rate, capital market condition, are the major external factors that affect the capital structure of a firm. The characteristics of an individual firm, which are termed as micro factors (internal), also affect the capital structure of enterprises. These factors include size of the firm, age of the firm, growth rate, business risk, profitability, leverage etc. But, whether the location of a firm affects its capital structure decisions and if yes than how and why is the subject matter of this paper. The present study is aimed at to understand the importance of location of the firm in making capital structure decisions of Indian companies. We propose to analyze the capital structure of 300 Indian private sector companies, comprising of 20 different sectors for the period 1999-2000 to 2007-2008, duly grouping them on the basis of their regions in which they are located. In this study, we try to find out the ways in which different companies at different times and in different institutional environments have financed their operations; and to identify possible implications of these financing patterns. The central issue we address is to examine the location variable  that influence the capital structure decisions of Indian companies and check whether the region to which the company belongs has a bearing on its capital structure or not. 


Keywords


Capital Structure, Leverage, Indian Corporate, Private sector, Funds flow

Full Text:

PDF

References


Barber, B., Odean, T., 2005, “All the glitters: The effect of attention on the buying behavior of individual and institutional investors,” Working paper, UC-Davis.

Bodnaruk, A., 2003, “Proximity always matters: Evidence from Swedish data,” Unpublished working paper, Stockholm School of Economics.

Bradley, M., G. Jarrell, and Kim E. (1984): On the Existence of an Optimal Capital Structure: Theory and Evidence, Journal of Finance, 39, 857-878.

Coval, J., Moskowitz, T., 2001, “The geography of investment: Informed trading and asset prices,” Journal of Political Economy 109, 811-841.

Corwin, S., Schultz, P., 2005, “The role of IPO underwriting syndicates: Pricing, information production, and underwriter competition,” Journal of Finance 60, 443-486.

Fama, E., and French K. (2000): Testing Tradeoff and Pecking Order Predictions about Dividends and Debt, working paper, University of Chicago and Sloan School of Management

Grossman, S., and Hart O. (1982): Corporate Financial Structure and Managerial Incentives, in: McCall, J. (ed.), The Economics of Information and Uncertainty, University of Chicago Press.

Harris, M., and Raviv A. (1991): The Theory of the Capital Structure, Journal of Finance 46, 297-355.

Huberman, G., 2001, “Familiarity breeds investment,” Review of Financial Studies 14, 659-680.

Ivkovic, Z., Weisbenner, S., 2005, “Local does as local is: Information content of the geography of individual investors’ common stock investments,” Journal of Finance 60, 267-306.

Jensen, M. (1986): Agency Cost of Free Cash Flows, Corporate Finance and Takeovers, American Economic Review 76, 323-339.

Jensen, M., and Meckling W. (1976): Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure, Journal of Financial Economics 3, 305- 360.

Jensen, M., D. Solberg, and Zorn T. (1992): Simultaneous Determination of Insider Ownership, Debt and Dividend Policies, Journal of Financial and Quantitative Analysis 27, 247-261.

Kim, E.H. (1978): A Mean-Variance Theory of Optimal Capital Structure and Corporate Debt Capacity, Journal of Finance, 33, 45-63.

Kraus A., Litzenberger R. (1973): A state-preference model of optimal financial leverage, Journal of Finance 28, 911-922.

Malloy, C., 2005, “The geography of equity analysis,” Journal of Finance 60, 719-755.

Modigliani, F., and Miller M. (1958): The Cost of Capital, Corporation Finance and the Theory of Investment, American Economic Review 48, 261-297.

Myers, S. (1977): The Determinants of Corporate Borrowing, Journal of Finance 32, 147-175.

Myers, S., and Majluf N. (1984): Corporate Financing and Investment Decisions When Firms Have Information Investors Do Not Have, Journal of Financial Economics 13, 187 222.

Moore, W. (1986): Asset Composition, bankruptcy Costs and the Firm’s Choice of Capital Structure, Quarterly Review of Economics and Business, 26, 51-61.

Rajan, R., and Zingales L.(1995): What Do We Know about Capital Structure? Some

Evidence from International Data, Journal of Finance, 50, 1421-1460.

Shenoy, C., and Koch P. (1996): The Firm’s Leverage-Cash Flow Relationship, Journal of Empirical Finance 2, 307-331.

Scott, J. (1977): Bankruptcy, Secured Debt and Optimal Capital Structure, Journal of Finance 32, 1-19.

Thies, C., and Klock M.(1992): Determinants of Capital Structure, Review of Financial Economics 1, 40-52.


Refbacks

  • There are currently no refbacks.




Editorial Office:

Educational Research Multimedia & Publications,
S.N. 21, Plot No 24, Mirza Ghalib Road Malegaon Nasik,
Maharashtra India - 423203.
+919764558895 (whatsapp),
editor@scholarshub.net, www.scholarshub.net

Copyrights © 2010-2020 - ERM Publications, India     

This work is licensed under https://creativecommons.org/licenses/by-sa/4.0/