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Reconciling Theory and Evidences for Corporate Financing in India

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  • Gaurav Singh Chauhan

Abstract

The article tries to reconcile theoretical predictions of the two most important capital structure theories with evidences for corporate financing in India. We identify that while the pattern of leverage supports the prediction of pecking order hypotheses strongly, the key arguments of the theory are missing. We also found a significant explanation for incremental changes in debt ratios caused by mechanical stock price movement as compared to the changes caused by the overall issuance activities of firms. Firms do not seem to readjust their debt ratios to counter the drift caused by these stock-related movements in debt ratios. JEL Classification: G32, G20, H25, H62, E62

Suggested Citation

  • Gaurav Singh Chauhan, 2016. "Reconciling Theory and Evidences for Corporate Financing in India," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 15(3), pages 295-309, December.
    • Handle: RePEc:sae:emffin:v:15:y:2016:i:3:p:295-309
    DOI: 10.1177/0972652716666462
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    Cited by:

    1. Valcacer, Santiago & José de Moura, Heber & Lopes , David & Amorim , Vinicius, 2017. "Capital structure management differences in Latin American and US firms after 2008 crisis," Journal of Economics, Finance and Administrative Science, Universidad ESAN, vol. 22(42), pages 51-74.
    2. Allini, Alessandra & Rakha, Soliman & McMillan, David G. & Caldarelli, Adele, 2018. "Pecking order and market timing theory in emerging markets: The case of Egyptian firms," Research in International Business and Finance, Elsevier, vol. 44(C), pages 297-308.
    3. R. Malar MARAN, & Alexandru Mircea NEDELEA, 2017. "Corporate Finance Theories And Principles: Redundant," EcoForum, "Stefan cel Mare" University of Suceava, Romania, Faculty of Economics and Public Administration - Economy, Business Administration and Tourism Department., vol. 6(2), pages 1-20, July.

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    More about this item

    Keywords

    Capital structure theories; pecking order; trade-off hypotheses; financing decisions;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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