Comparison of Capital Structure Determinants of Public Sector and Private Sector Companies in India

Abstract

The paper attempts to identify factors which are essential while making capital structure decisions for public sector companies and private sector companies in India. It studies the impact of ten independent variables on three dependent variables for each of the sectors respectively. Most of the researches in determinants of capital structures till date have been done in developed economies, with limited research in emerging markets. This research will add to the understanding of this issue in emerging markets, broadly classifying it into two sectors. The paper utilizes a larger data set in comparison to the earlier studies in India and examines additional factors. This study presents evidence on the determinants of the capital structures with data from NSE Listed Companies. The study period in the study is from 2001 201 O with a sample of 870 listed companies of which 809 are Private Companies and 61 Government Companies. The tool used for research methodology is Regression Modelling. Prof. Anshu Handoo ·, Dr. Kapil Sharma··

The capital structure puzzle – evidence from Indian energy sector

“…According to agency theory, a firm’s ability to service its debt reduces agency costs and motivates a higher use of debt to enjoy higher tax shield. Studies such as Eriotis et al (2007), Lima (2010), Handoo and Sharma (2012), Banerjee and De (2014) have used debt service capacity ratio as an independent variable to determine its impact on capital structure.…”

“…The empirical result of the studied Nigerian firms suggest that interest costs borne by debt are counterbalanced by the tax benefits availed. Handoo and Sharma (2012) have done a comparative study of capital structures of Indian state-owned and privately held companies. They found that for the state-owned (public) companies, both equity and debt funding options are available; however, when raising debt funding, factors like firm size, age of the firm, cost of capital and debt servicing capability tend to play a significant role.…”