The study of the determinants of the capital structure of Indian firms assumes significance since it deals with the pattern of financing of corporate investments. Over the last 15 years, the Indian economy experienced three different phases of economic growth, viz. 1998–2002, 2003–2007 and 2008–2012. Our study shows that firms relied more on debt financing during the bear phase of 1998–2002 but shifted towards increased equity financing in the bullish period of 2003–2007. The leverage of firms in a year declined in response to increased profit of the earlier year and this behaviour implied debt aversion. The increased financing of investments by corporate savings during 2003–2007 boosted up India’s growth rate. The post-meltdown period of 2008–2012, however, witnessed fall in corporate savings and investments and the accumulation of excess speculative liquidity.
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