NDLI: Capital Structure Decisions in Emerging Markets : An Inquiry into the Capital Structure of Group & Non-Group Affiliated Firms in India

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Capital Structure Decisions in Emerging Markets : An Inquiry into the Capital Structure of Group & Non-Group Affiliated Firms in India

Content Provider	Semantic Scholar
Author	Patel, H. M. Damodaran, Aswath
Copyright Year	2009
Abstract	This study presents an empirical analysis on the capital structure decisions of group-affiliated and non-affiliated firms in India. We consider the impact of group-affiliation on debt levels in the context of various capital structure theories, and hypothesize that group-affiliated firms carry higher levels of debt on their balance sheets. We use a sample of firms drawn from the Bombay Stock Exchange 500 Index. Through univariate and multivariate analyses we conclude that this hypothesis is incorrect, and that group-affiliated firms have levels of leverage that are not significantly different from the levels exhibited by standalone firms. This leads us to conclude that no particular capital structure theory has a dominant impact on the leverage of groupaffiliated firms vis-à-vis non-group affiliated firms. We hypothesize that this is due to firms' endeavors to improve corporate governance standards and thus improve transparency and avoid intra-group and cross-subsidization transactions. This implies that they behave more like standalone companies and exhibit similar characteristics. We also hypothesize that the proliferation of credit in Indian markets has increased access to external financing for all firms. Group-affiliated firms that used to have better access to financing don't hold a significant advantage over its standalone counterparts due to the easy availability of credit. *I am extremely grateful to, Professor Aswath Damodaran for his insight and guidance, to Professor Marti G. Subrahmanyam for his advice and investment into the Honors Program, to anonymous executives who manage diversified groups in India for their assistance, and to my parents Bapsy & Minoo F. Patel for their unyielding support and visionary guidance over the last twenty-two years. All errors herein are my own.
File Format	PDF HTM / HTML
Alternate Webpage(s)	http://www.stern.nyu.edu/sites/default/files/assets/documents/con_043136.pdf
Language	English
Access Restriction	Open
Content Type	Text
Resource Type	Article

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