Author(s) :

Shweta Goel.

Volume/Issue :

Abstract :

The relationship betweenmacroeconomic factors andthe capital structure of Indian listed companies has been expounded in the present study using panel data from 2008 to 2017of 255 non- financing companies. Macro-economic indicators i.e. gross domestic product (GDP), interest rate and inflation rate have been studied to analyze their influence on capital structure decisions. GDP growth rate is found to negatively and statistically significantly related with capital structure measured by long term debt to total assets, whereas in terms of total debt the relationship is again negative though not statistically significant. Inflation is positively and statistically significantly associated with capital structure measured in terms of both long term debt as well as total debt. As far as relationship between levels of debt and rate of interest is concerned, the results of panel regression suggest negative though not significant relation between the two

No. of Downloads :

7

KEYWORDS:

Capital structure, Macro-economic, Indian, GDP, Inflation rate, Interest rate.

INTRODUCTION & OBJECTIVES:

Capital structure is one of the most argumentative areas in the field of financial literature and the puzzle of debt and equity equation in the firm’s capital structure is an ever going mystery. In the technical jargon, capital structure refers to the way firm funds its investment decisions by combining different sources of funds particularly with a blend of debt, equity or hybrid securities. Firms often thrive to achieve an optimal mix of different long term sources of fund which implies a capital structure where combination of sources leads to maximizing firm’s value and minimizing firm’s overall cost of capital. Among the various contributors, some names include Modigliani and Miller, Durand, Myres, Donaldson, Jensen and Meckling each of which has a different proposition regarding firm’s capital structure. A range of empirical and theoretical researches are available testing the relevance of these theories developed and their propositions. Apart from the various theories developed over time, researchers have shown keen interest in determining the factors influencing capital structure decisions of firms. Accordingly, almost an endless list of attributes relative to capital structure decisions could be created. Looking from micro perspective, various firm specific attributes such as assets structure, size of the firm, growth opportunities, profitability, taxation, risk & volatility, liquidity, product uniqueness, non- debttax shields have been found to be the key determinants of firm’s capital structure (Harris and Raviv, 1991; Titman and Wessels, 1988; Gaud et. al., 2005; Damodaran, 2004). Besides the various above mentioned factors researched upon over past years, several country specific factors can also play significant role in determining the capital structure of firms. However this aspect of country specific attributes has been an area not very much researched upon and whatever researches have been done are majorly confined to developed economies of the world. Also, the limited literature review available in this respect suggests the studies relating to macro-economic framework of a country influencing capital structure decisions. Accordingly the present study focuses on India, the fastest developing economy and aims at studying the relationship that might exist between the macro-economic indicators of Indian economy and the capital structure decisions of Indian Listed companies. This study conducts panel data analyses on a sample of 255 non financing Indian companies listed on NIFTY 500 Index for a period from 2008 to 2017. Objective of the study The study seeks to examine how macro-economic scenario of Indian economy influences and drives the capital structure decisions of Indian listed firms. Accordingly the following objectives have been framed for the evaluation purpose: • To study the relationship between Gross domestic product and the capital structure decisions of Indian listed companies. • To study the relationship between Inflation rate and the capital structure decisions of Indian listed companies. To study the relationship between Interest rate and the capital structure decisions of Indian listed companies.

DOI:

10.58426/cgi.v2.i2.2020.4-30