PurposeThe purpose of the paper is to examine the impact of macroeconomic variables on the capital structure of manufacturing companies in the Indian context.Design/methodology/approachThe paper employs panel regression technique (random effects model) on a sample of 1,029 listed Indian manufacturing companies divided into two categories – large-size companies and mid-size companies for the last ten years from FY 2008–09 to FY 2017–18. Two separate models pertaining to long-term leverage (TTL_TNW ratio) and total leverage (TOL_TNW) have been examined.FindingsMajor findings show that macroeconomic variables play a relatively more important role in deciding the long-term debt component in the capital structure of the firms as compared to short-term loans. Similarly macroeconomic variables are found to be more significant in case of large-size companies as compared to mid-size companies. Also, there is a negative relationship between market capitalisation and leverage and bank credit and leverage, whereas money supply has a positive relationship with leverage.Research limitations/implicationsThe study makes an important contribution to the existing literature in understanding better how macroeconomic variables play an important role in determining the capital structure of firms. In the present dynamic economic environment, such a study lays down the macro areas on which the academicians, policymakers and financial managers can focus with respect to corporate financing decisions. The firm-specific factors have not been taken into account. Inclusion of these factors will make the results more robust.Originality/valueThe study focusses on the impact of macroeconomic variables on the capital structure decision of the Indian firms. Several studies in this area have been done in the context of the developed countries. However, there are not many studies in the Indian context that examine the relationship between financing decision and macroeconomic variables. The results that have been derived in case of developed economies may not be extended in the Indian context as there are considerable differences across countries related to corporate and legal environment, taxation system, corporate governance laws, interest rate environments, banking system, sources of funds and so on. Therefore, it becomes important to focus on countries individually.
This article examines the impact of the US Quantitative Easing (QE) on the Indian economy. Against the backdrop of indications of economic slowdown worldwide and developing countries lowering the interest rates and restarting the treasury purchases, it aims to understand the influence US QE had on Indian economy and how it will impact way forward. Macroeconomic variables pertaining to India and the USA were examined from September 2008 to June 2019 (fortnightly data) using the vector error correction method model. It was found that the influence of the US monetary base on the Indian money supply was far more as compared to the US policy rate. Overall, the impact of QE on the Indian economy has not been as large as on the other economies of the world due to regular RBI intervention in terms of interest rates, exchange rates and other active monetary policy measures. JEL Classification Codes: E44, E52, E58, F32, O16
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