Corporate Finance Structure in Indian Capital Market: A Case of Indian Pharmaceutical Industries

Venkatamuni Reddy R and Hemanth Babu P

The IUP Journal of Financial Economics, 2008, vol. VI, issue 2, 70-85

Abstract: This paper discusses the corporate financial structure in Indian capital market, and how the corporate sectors raise their finance: Whether they raise their finance through internal sources or external sources within India. The main objectives of this study are, firstly, to find the nature and pattern of Indian corporate finance in general, and secondly to study the structure of selected pharmaceutical companies in India registered in the National Stock Exchange (NSE). This paper tests the hypotheses associated with the objectives through target adjustment model and pecking order model. The models applied in this paper are OLS, GLS, and fixed effect models. The results obtained contradicts the pecking order model and supports the target adjustment model. Firstly, the study finds that the companies are financially stable and mostly finances their investments from retained earnings, and for the rest, they depend more on equity rather than debt finance. Secondly, the paper infers that Indian pharmaceutical companies finance their investments mainly through internal funds and the rest is financed through equity share capitals.

Date: 2008
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