Does capital structure depend on group affiliation? An analysis of Indian firms

Indrani Chakraborty

Journal of Policy Modeling, 2013, vol. 35, issue 1, 110-120

Abstract: This paper investigates the effect of group-affiliation on Indian corporate firms’ capital structure, based on data on 875 Indian non-financial firms for the period 2002–2010. The GMM turns out to be the most appropriate among the three alternative methods. Following our hypothesis, group-affiliated firms are found to have lower leverage than the stand-alone firms. Managers of group-affiliated firms seem to prefer equity as high leverage increases its bankruptcy risk. Also, firms are forced to cut capital requirements and R&D investments in order to service debt payments, damaging their long-run efficiency and competitive position. From our analysis the conclusion that follows for the policy makers is that although group-affiliation is considered to be beneficial for emerging economies like India in some earlier studies (Khanna & Palepu, 2000a), they ignored other dimensions of firm performance such as optimization of capital structure.

Keywords: Business groups; India; Panel data; GMM estimation; ‘Lagged’ time-series analysis (search for similar items in EconPapers)
JEL-codes: C13 C23 G30 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jpolmo:v:35:y:2013:i:1:p:110-120

DOI: 10.1016/j.jpolmod.2012.02.006

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