Determinants of capital structure; a sector-level analysis for Indian manufacturing firms

Ajaya Kumar Panda and Swagatika Nanda

International Journal of Productivity and Performance Management, 2020, vol. 69, issue 5, 1033-1060

Abstract: Purpose - The purpose of this paper is to empirically analyze the determinants of capital structure and their long-run equilibrium relationships with firm-specific and macroeconomic indicators for Indian manufacturing firms. Design/methodology/approach - The study is conducted using the panel semi-parametric and non-parametric regression models to identify the key determinants of capital structure. Panel cointegration models are also employed for analyzing the long-run equilibrium association of capital structure with its determinants. Findings - The study finds that each manufacturing sector has unique determinants of capital structure. The debt level is significantly affected by asset tangibility, growth opportunity, effective tax rate, non-debt tax shield, cash flow, profitability, firm size, foreign investment, government borrowing, economic growth, and interest rate. All these firm-specific and macroeconomic variables have strong long-run equilibrium relationship with capital structure as a whole. Practical Implication of the Study - The study analyzes the determinants of capital structure for eight manufacturing sectors of India, which helps firm managers and policy-makers to identify appropriate factors that maximize firm value. The sector-specific features of firms may lead to a new path with regard to corporate governance and ownership structure to enhance stakeholder's satisfaction. Originality/value - The use of semi-parametric and non-parametric panel regression models to analyze the determinants of capital structure, and the use of panel cointegration approach to explore the long-run equilibrium relationship between the determinants and its factors are the unique contributions of the present research.

Keywords: Capital structure; Indian Manufacturing firms; GMM; Non-parametric models; Panel cointegration; Profitability (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijppmp:ijppm-12-2018-0451

DOI: 10.1108/IJPPM-12-2018-0451

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