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IIT Kharagpur
CONTENTS
CHAPTER TITLE PAGE
Title Page
Certificate of Approval v
Certificate of Supervisor vi
Acknowledgements vii
Declaration of Scholar viii
Abstract ix
List of Abbreviations x
List of Symbols xii
CHAPTER 1 INTRODUCTION 1-20
1.1 Background of the Study 1
1.2 Rationale behind the Study 5 1.3 Scope and Objectives 8
1.4 Data 9
1.5 Methodology 10
1.5.1 Panel Data Models 10
1.5.2 Fixed Effects Model 13
1.5.3 Random Effects Model 14 1.5.4 Hypothesis Testing with Static Panel 16
Data
1.5.5 Dynamic Panel Data Model 16
1.6 Organisation of the Study 19
CHAPTER 2 REVIEW OF LITERATURE 21-46
2.1 Introduction 21
2.2 Growth, Significance and Financing 22 Pattern of Private Corporate Sector
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IIT Kharagpur
2.3 Theories of Corporate Capital Structure 24
2.3.1 Modigliani and Miller’s Theorem 24
2.3.2 Trade-off Theory 25
2.3.3 Agency Theory 25
2.3.4 Pecking Order Hypothesis 26
2.3.5 Market Timing Theory 26
2.3.6 Inertia Theory 27
2.4 Empirical Evidences 27
2.4.1 Determinants of Capital Structure 27
2.4.2 Evidences on Dynamic Trade-Off 30
2.4.3 Evidences on Pecking Order Hypothesis 32
2.4.4 Evidences on Modified Pecking Order 33
Hypothesis 2.4.5 Evidences on Market Timing Theory 35
2.4.6 Evidences on Inertia Theory 37
2.5 Macro Economic Condition and Capital Structure 38
2.6 Business Group and Capital Structure Dynamics 40
2.7 Determinants of Adjustment Speed to Target Capital 43
Structure 2.8 Summary and Conclusions 45
CHAPTER 3 GROWTH, SIGNIFICANCE AND FINANCING 47-69 PATTERN OF PRIVATE CORPORATE SECTOR IN INDIA 3.1 Introduction 47
3.2 Policy Measures 48
3.3 Growth and Significance of Private Corporate Sector 53
3.4 Financing Pattern of Indian Private Corporate Sector 60
3.5 Debt Equity Ratio of the Select Developed Countries 68
3.6 Summary and Conclusions 69
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IIT Kharagpur
CHAPTER 4 TESTING THE THEORIES OF CAPITAL 71-103 STRUCTURE AND DETERMINING THE
SPEED OF ADJUSTMENT TO TARGET CAPITAL STRUCTURE
4.1 Introduction 71
4.2 Financing Pattern of Indian Manufacturing Companies 73
4.3 Empirical Framework for Testing the Theories of Capital 77
Structure 4.3.1 Models Specification and Methodology 77
4.3.1.1 Dynamic Trade-off Theory 77
4.3.1.2 Pecking Oder Theory 78
4.3.1.3 Nested Model or Modified Pecking Order 79
Theory 4.3.1.4 Market Timing Theory 79 4.3.1.5 Stock Return and Capital Structure 81
4.3.1.6 Methodology 82
4.3.2 Variables 82
4.3.3 Discussion of Results 85
4.3.3.1 Dynamic Trade-off, Pecking Order and 88
Modified Pecking Order Theories Results 4.3.3.2 Historical Market-to Book ratio and Capital 91
Structure 4.3.3.3 Stock Return and Capital Structure Results 95 4.3.3.4 Wald Test Results 96
4.4 Determination of Adjustment Speed to Target Capital 97
Structure 4.4.1 Model Specification and Methodology 98
4.4.2 Determinants of Adjustment Speed to Target 98 Capital Structure 4.4.3 Discussion of Results 100
4.5 Summary and Conclusions 101
