This paper tries to identify the nature of historical market-to-book ratio, that is, whether it can be used as a market timing proxy or growth opportunity proxy and to find out its impact on capital structure and the adjustment speed to target capital structure. Using a panel data analysis we find the evidence that the historical market-to-book ratio has been a better proxy for growth opportunity than market timing and it plays a significant role for determination of capital structure for Indian manufacturing companies. We also find that Indian manufacturing companies do have a target capital structure and the speed of adjustment to this target capital structure has been around 40 per cent, but the historical market-to-book ratio does not have a significant impact on the speed of adjustment.
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