Historical Market-to-Book Ratio and Corporate Capital Structure: Evidence from India

Sulagna Mukherjee and Jitendra Mahakud

Global Business Review, 2012, vol. 13, issue 2, 339-350

Abstract: 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.

Keywords: Historical market-to-book ratio; capital structure; market timing; growth opportunity; speed of adjustment (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:sae:globus:v:13:y:2012:i:2:p:339-350

DOI: 10.1177/097215091201300211

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