A Study of Determinants of Capital Structure through Panel Data Analysis of Firms Listed in NSE CNX 500

Abstract

This study contributes to the capital structure literature by investigating the determinants of capital structure of firms listed in NSE CNX 500. The period of the study is 2008–2015, the period starting from the year of global slowdown. This study is an attempt to study the capital structure of firms listed in National Stock Exchange in the post liberalization period. The objectives of the study are to study the impact of independent variables such as growth, profitability, tangibility, liquidity, size and non-debt tax shield on financial leverage and also to find out whether the results are in line with the pecking order theory or the trade-off theory of capital structure. Size is taken as a control variable. Our study supports the trade-off theory for all variables such as growth, profitability, size tangibility and non-debt tax shield. Liquidity is the only independent variable that goes in accordance with the pecking order theory. Thus, this study is more inclined towards the trade-off theory.

Exploring the Determinants of Financial Structure in the Technology Industry: Panel Data Evidence from the New York Stock Exchange Listed Companies

“…Trade-off theory states that there is a negative relationship, assets intangibility of firms with high growth rates implies the risk of losing value in case of financial distress. (Chaklader and Chawla 2016;Psillaki and Daskalakis 2009) showed that the growth variable is statistically insignificant, contrary to (Alipour et al 2015;Cortez and Susanto 2012) who concluded that the relationship between the growth variable and the dependent variable is significantly negative.…”

“…(Cortez and Susanto 2012;Krishnan and Moyer 1996;Psillaki and Daskalakis 2009;Rajan and Zingales 1995;Titman and Wessels 1988) obtained a negative association between profitability and indebtedness, while (Alipour et al 2015;Song 2005) obtained a positive one. Chaklader and Chawla (2016) show an insignificant relationship.…”

“…A high tangibility ratio will probably also have low financial costs according to the trade-off theory. (Chaklader and Chawla 2016;Cortez and Susanto 2012;Rajan and Zingales 1995;Song 2005) obtained in their papers a positive association between tangibility and indebtedness. (Chittenden et al 1996; Demirgüç-Kunt and Maksimovic 1999; van der Wijst and Thurik 1993) obtained a negative relationship.…”

“…In contrast, pecking order theory predicts a negative relationship, due to the fact that larger firms deal with lower adverse selection and have the ability to issue equity more easily compared to small businesses. (Chaklader and Chawla 2016;Psillaki and Daskalakis 2009;Rajan and Zingales 1995;Song 2005) achieved a positive association. Alipour et al (2015) obtained an inverse relationship, concluding that small companies have no option but to resort to bank loans.…”

“…Total debt rate TD Total debts/total assets Bokpin (2009), Chaklader and Chawla (2016), Psillaki and Daskalakis (2009), Su (2010), Viviani (2008) Long-term debt rate LTD Long-term debt/total assets Amidu (2007), Eldomiaty and Azim (2008), Ezeoha (2008), Hall et al (2004), Titman and Wessels (1988), van der Wijst and Thurik (1993), Viviani 2008Short-term debt rate STD Short-term debt/total assets Amidu (2007), Eldomiaty and Azim (2008), Ezeoha (2008), Hall et al (2004), van der Wijst and Thurik (1993) Source: Author's own work.…”