Purpose – The purpose of this paper is to test whether Indian firms follow the pecking order theory under situations of deficiency as well as surplus. Design/methodology/approach – The study examines Indian firms included in the Bombay Stock Exchange (BSE) 500 index, covering a time span of ten years (2003-2012). An extended model of pecking order theory is tested for deficit and surplus firms separately. The authors use ordinary least square regressions to test the results. Findings – The findings indicate that the pecking order theory is an excellent descriptor for deficit firms, but a poor one for surplus firms. Deficit firms frequently issue debt to fill up deficiency requirements but keep their debt ratios in limit. In marked contrast, surplus firms have low debt to equity ratios and only occasionally redeem debt. They tend to retain funds for future expansion and other operational needs. Research limitations/implications – The study is limited to firms included in the BSE 500 index, but could be extended to others. Future research work could also focus on debt sub-components. Practical implications – The present study is useful for firms that are considering capital structure decisions and supports finding that deficit and surplus firms behave differently. Originality/value – This is the first study separately testing the pecking order between deficit and surplus firms in an emerging market.
India witnessed the first major wave of COVID-19 in 2020. The second major wave during April 2021 caused a higher number of infected cases across the country. These waves of COVID-19, rising cases and lockdown announcements severely impacted the Indian economy. Moreover, huge volatility was observed in the prices of oil and exchange rates during the similar period. Thus, this study tests the effect of selected macroeconomic variables and the COVID-19 pandemic on the performance of the Indian stock market. Using co-integration and the vector error correction model on the NIFTY 100 firms, the findings suggest co-integration and long-term association among variables. The Indian stock market experienced an inverse connection with the exchange rate volatility; the coefficient value is 57.582. The exchange rates rose heavily (with a value of Indian rupee being 76.95 against US dollar) with the onset of COVID-19 cases. Further, these cases do hurt the sentiments of the stock market; however, the relationship is relatively infirm (the value is 0.22) as compared to that of the exchange rate. The accumulated major negative influence of COVID-19 on the economy had a weak impact on the stock market. In conclusion, it should be noted that after the first wave, businesses were more prepared and therefore incorporated the required changes that saw them through the second wave. AcknowledgmentThe infrastructural support provided by the FORE School of Management, New Delhi in completing this paper is gratefully acknowledged.
The present study tests the pecking order of firms at varying debt levels. The findings indicate that deficit firms at low debt levels raise significant amounts of debt, thus indicating the adherence to the pecking order theory. Deficit firms (from both countries) at exceptionally high debt levels do not adjust their capital structure by issuing less debt. In a surplus situation, Chinese firms at very high level redeem the substantial debt because of the dominance of short-term debt in their capital structure. In contrast, Indian surplus firms hesitate to redeem more debt if their existing debt levels are extremely high. JEL Classification: Q14, G32
The present article tests the pecking order of various industries from India and China. Firms in each industry have been segregated into deficit and surplus groups. The empirical findings indicate that a large number of industries from India and China adhere perfectly to the pecking order during deficiency. Borrowings through long-term debt are more among Indian deficit industries, whereas Chinese industries borrow more short-term debt. The debt issues are considerably large among Indian construction, metal and transport industries, and Chinese electrical and metal industries. During deficiency, Indian industries do not redeem debt with significant amount, while most of the Chinese industries utilize a significant portion of new debt issues to retire existing debt due to heavy reliance on short-term debt and therefore, industries perforce are to redeem more debt. In a surplus situation, the pecking order results indicate mixed evidence pertaining to the pecking order behaviour of Indian as well as Chinese industries. The results are robust for Indian chemicals and information and communications technology (ICT) surplus industries and Chinese metal, pharmaceutical and chemicals industries.
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