Determinants of Capital Structure in Indian Manufacturing Sector

Abstract

This article is an attempt to analyse the important determinants of capital structure in Indian manufacturing industries in the last decade. Over the past several years, financial economists and researchers have worked to bring more of scientific and predictive understanding in corporate finance; this has been done by preparing formal theories that can be tested by empirical studies of corporate and stock market behaviour. But this brings us to the most important issue to developing a well-defined and exhaustive theory of capital structure which also finds applicability in an actual market scenario and designing empirical tests that are powerful enough to provide a basis for choosing among the various theories. In several competing theories, researchers have given their perspective in the form of theories, since Modigliani and Miller’s famous propositions on the capital structure, to test the ground realities of capital market imperfections such as taxes, bankruptcy costs, agency costs and information asymmetries. Therefore, the determinants of the capital structure of companies have been debated for long in corporate finance. To bring more clarity on it, this research attempts to test the important determinants of the capital structure of companies.

Keywords

Capital structure leverage debt–equity ratio

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