Determinants of Capital Structure in India (1990-1998): A Dynamic Panel Data Approach

Guha-Khasnobis, Basudeb; Bhaduri, Saumitra N.

doi:2002.17.4.761

The Journal of Economic Integration 2002 April;17(4) :761-776.
DOI: https://doi.org/10.11130/jei.2002.17.4.761

Determinants of Capital Structure in India (1990-1998): A Dynamic Panel Data Approach

Basudeb Guha-Khasnobis, Saumitra N. Bhaduri,

The United Nations University
Indian Council for Research on International Economic Relations

ABSTRACT

Conventional wisdom on capital structure choices has been by and large confined to the United States and a few advanced countries having institutional similarities. In this paper we make an attempt to provide some insight into the capital structure choice of developing countries through a case study of the Indian corporate sector. We develop a dynamic panel data model that explicitly takes into account the possibility of adjustment cost to reach optimal capital structure. The results suggest that restructuring cost is important in adjustment towards an optimal capital structure. We identify the key determinants of the speed of adjustment towards optimal capital structure and also highlight important differences across cohorts formed on the basis of firm-specific attributes. JEL Classifications (E44, G32)

Keywords: Capital Structure | India | Panel Data | Adjustment Cost

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