Capital Structure Practices - Empirical Evidence from Indian Corporates

Abstract

Capital structure practices/decisions assume vital significance in corporate financial management as they influence both return and risk of equity owners of corporate enterprises. Whereas excessive use of debt may endanger their very survival, a consultative policy with regard to debt deprives them of its advantages to magnify the equity rates of return. The objective of this paper is to have an in-depth examination of the debt component in the capital structure/financing decision practices pursued by the 166 nonfinancial companies (constituting the BSE 200 index of the Bombay Stock Exchange (BSE) over the period 2001-2011; the selected sample represented 84.32 per cent of the total market capitalization on the BSE, as on April 1,2010 (Source: Bombay Stock Exchange (BSE) website). The period of the study is of particular importance because of the recession (originating due to the US financial crisis) that impacted the world economy towards the second-half of 2008.