The objective of this study is to empirically examine the capital structure theories that can explain the capital structure choice made by the firms that are operating in China, India, and South Africa. The study tests the capital structure theories as a stand-alone basis as well as an integrated framework of nested models using advanced dynamic panel data methods with a data-set of 1,183 firms with 12,187 firm-year observations spanning the period 1999-2016. Findings suggest that the firms adjust toward target leverage very quickly and trade-off theory explains the firms' capital structure choice better than pecking order theory in the stand-alone model as well as the model nesting these two theories. This study contributes to the empirical literature of capital structure in the following way. First, this study uses error correction framework as a general specification of the widely used partial adjustment model. Second, the study uses advanced panel data estimators to estimate partial adjustment model and error correction model. Finally, the different specifications are tested using a large data-set of firms in China, India, and South Africa that has not been done so far.

No abstract

No abstract

Measurement of diversification has always remained one of the critical issues in diversification literature. During the past half-century, many measures of corporate diversification have been suggested and applied. Traditionally, diversification as a continuous variable has been measured through 'entropy' and 'Herfindahl index'. While both measures are able to capture related and/or unrelated diversification, they fail to capture degree of relatedness of group firms. To address this, a new measure of diversification is proposed, which is based on correlation of firms' sales. It will not only capture degree of relatedness of group firms but also decompose the components into additive structure and would vary between zero and one. We have found a quadratic relationship between a firm's profitability and its degree of diversification. Further, it was observed that diversified firms are performing better irrespective of their degree of diversification if performance is measured in terms of accounting variables (return on asset and return on equity); however, market-based variable (Jensen's alpha) is higher in case of very low and very high degree of diversification.

No abstract