The Determinants of Indebtedness in Unlisted Manufacturing Firms in India: A Panel Data Analysis
This research examined the borrowing behavior of unlisted private stand-alone manufacturing firms in India over the period 2006-07 to 2009-10 using balance sheet data. Findings suggest that total indebtedness is lower in unlisted manufacturing firms compared to their listed counterparts, and the difference is more pronounced in long-term borrowing ratio compared to short-term borrowing ratio. Unlisted manufacturing firms depend predominantly on banks for financing purposes in order to circumvent their inability to tap financial resources from capital markets, and they borrow predominantly on a secured basis. It seems collateralized borrowings enables these firms to overcome the problem of information opacity; asset tangibility enhances debt capacity in general and secured debt capacity in particular as the agency theory would suggest. This research does not provide any evidence to suggest that a close bank-firm relationship ease collateral requirements for unlisted firms, nor is there any evidence of the monitoring role of secured debt enhancing firm performance and hence profits. The ‘pecking order’ of financing as the asymmetric information theory of capital structure suggests, does not seem valid for unlisted firms; internal resource generating capacity only influences reliance on short-term funding, with no bearing on long term fund need.
|Date of creation:||02 Oct 2012|
|Date of revision:|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Igawa, Kazuhiro & Kanatas, George, 1990. "Asymmetric Information, Collateral, and Moral Hazard," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 25(04), pages 469-490, December.
- Robert E. Carpenter & Bruce C. Petersen, 2002. "Is The Growth Of Small Firms Constrained By Internal Finance?," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 298-309, May.
- Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Raghuram G. Rajan & Luigi Zingales, 1994.
"What Do We Know About Capital Structure? Some Evidence from International Data,"
NBER Working Papers
4875, National Bureau of Economic Research, Inc.
- Rajan, Raghuram G & Zingales, Luigi, 1995. " What Do We Know about Capital Structure? Some Evidence from International Data," Journal of Finance, American Finance Association, vol. 50(5), pages 1421-60, December.
- Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
- Luigi Zingales, 2000.
"In Search of New Foundations,"
NBER Working Papers
7706, National Bureau of Economic Research, Inc.
- Lahcen Achy, 2009. "Corporate Capital Structure Choices In Mena: Empirical Evidence From Non-Listed Firms In Morocco," Middle East Development Journal (MEDJ), World Scientific Publishing Co. Pte. Ltd., vol. 1(02), pages 255-273.
- Stulz, ReneM. & Johnson, Herb, 1985. "An analysis of secured debt," Journal of Financial Economics, Elsevier, vol. 14(4), pages 501-521, December.
- Gavin Cassar & Scott Holmes, 2003.
"Capital structure and financing of SMEs: Australian evidence,"
Accounting and Finance,
Accounting and Finance Association of Australia and New Zealand, vol. 43(2), pages 123-147.
- Gavin Cassar & Scott Holmes, 2003. "Capital structure and financing of SMEs: Australian evidence," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 0(2), pages 123-147.
- Diamond, Douglas W, 1989.
"Reputation Acquisition in Debt Markets,"
Journal of Political Economy,
University of Chicago Press, vol. 97(4), pages 828-62, August.
- Eugene F. Fama & Kenneth R. French, .
"Testing Tradeoff and Pecking Order Predictions about Dividends and Debt.”,"
CRSP working papers
506, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
- Eugene F. Fama, 2002. "Testing Trade-Off and Pecking Order Predictions About Dividends and Debt," Review of Financial Studies, Society for Financial Studies, vol. 15(1), pages 1-33, March.
- Saumitra Bhaduri, 2002. "Determinants of corporate borrowing: Some evidence from the Indian corporate structure," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 26(2), pages 200-215, June.
- Scott, James H, Jr, 1977. "Bankruptcy, Secured Debt, and Optimal Capital Structure," Journal of Finance, American Finance Association, vol. 32(1), pages 1-19, March.
- Inderst, Roman & Mueller, Holger M., 2007.
"A lender-based theory of collateral,"
Journal of Financial Economics,
Elsevier, vol. 84(3), pages 826-859, June.
- Inderst, Roman & Mueller, Holger M, 2006. "A Lender-Based Theory of Collateral," CEPR Discussion Papers 5695, C.E.P.R. Discussion Papers.
- Inderst, Roman & Mueller, Holger M., 2006. "A lender-based theory of collateral," IMFS Working Paper Series 6, Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS).
- Harris, Milton & Raviv, Artur, 1990. " Capital Structure and the Informational Role of Debt," Journal of Finance, American Finance Association, vol. 45(2), pages 321-49, June.
- Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
- Saumitra Bhaduri, 2002. "Determinants of capital structure choice: a study of the Indian corporate sector," Applied Financial Economics, Taylor & Francis Journals, vol. 12(9), pages 655-665.
- Guha-Khasnobis, Basudeb & N. Bhaduri, Saumitra, 2002. "Determinants of Capital Structure in India (1990-1998): A Dynamic Panel Data Approach," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 17, pages 761-776.
- Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-29, May.
- Graham C. Hall & Patrick J. Hutchinson & Nicos Michaelas, 2004. "Determinants of the Capital Structures of European SMEs," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 31(5-6), pages 711-728.
- Booth, L. & Asli Demirgu-Kunt, V.A. & Maksimovic, V., 1999.
"Capital Structure in Developing Countries,"
Rotman School of Management - Finance
00-001, Rotman School of Management, University of Toronto.
- Leeth, John D. & Scott, Jonathan A., 1989. "The Incidence of Secured Debt: Evidence from the Small Business Community," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 24(03), pages 379-394, September.
- Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
- Michaelas, Nicos & Chittenden, Francis & Poutziouris, Panikkos, 1999. "Financial Policy and Capital Structure Choice in U.K. SMEs: Empirical Evidence from Company Panel Data," Small Business Economics, Springer, vol. 12(2), pages 113-30, March.
- Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:43427. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter)
If references are entirely missing, you can add them using this form.