Abstract of the Research Paper on “Capital Structure of
Indian Corporate and Impact of Liberalization”
In
the last two decades, there has been an upsurge in research on company finance,
particularly aimed at understanding how companies finance their activities and
why they finance their activities in these specific ways. In practice, it is
observed that finance managers use different combinations of debt and equity. A
practical question therefore is: What motivates them to do so? More fundamental
questions to be answered are: (1) Does use of debt create a value? (2) If so,
do firms gravitate towards an optimum mix of debt and equity?
In theory, it is argued that the financing decision is irrelevant under perfect
capital markets. When, within the framework of perfect capital markets, taxes
and bankruptcy costs are assumed, the financial economists argue that an
optimum capital structure, which maximizes the market value of the firm (or
minimizes cost of capital), can exist. But, in case of an imperfect market, the
views differ greatly and, as a result, till date, no universally accepted model
has been developed on this crucial issue. Firms in developing countries like India, are found following different
financing policies-some aggressive and some conservative. One needs to
investigate into the causes of this behavior. The proposed
research is intended to examine nature and components of the capital structure
of Indian companies and the impact of liberalization and changes if any noticed
due to liberalization, on the capital structure of Indian companies.
