Universal Journal of Accounting and Finance Vol. 9(2), pp. 160 - 169
DOI: 10.13189/ujaf.2021.090203
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Determinants of Target Capital Structure and Adjustment Speed: Evidence from India

Sutanuka Shaw ^1,*, Debdas Rakshit ^2
1 Department of Commerce, T.D.B College, Raniganj, West Bengal, India
² Department of Commerce, The University of Burdwan, West Bengal, India

ABSTRACT

This paper analyses the adjustment speed of the firm to achieve target leverage. The study further extends the empirical work to diagnose the factors that significantly impact its capital structure. The study consists of 132 Indian non-financial firms listed in the National Stock Exchange for the period 1998-2018. A static panel model and dynamic two-step GMM model has been used to make a comparative analysis and select the best model. The results of the study claim that the adjustment speed is 44 percent per annum, yielding a half-life of 1.18 years. Further, the study reveals that profitability, tangibility, and GDP growth are significantly related to leverage in the dynamic model. In the static model, besides profitability, tangibility, and GDP Growth, its uniqueness, growth, and age also significantly impact leverage. In the study, the R square appears to be 0.34, and the determinants, namely, profitability, growth uniqueness, and age, follow pecking order theory, and size, tangibility, liquidity, GDP Growth, and inflation follow trade-off theory. The comparative statement results reveal that the dynamic model is more realistic, considering the adjustment cost. This paper can be further improved by incorporating human resource factors and their impact on its leverage.

KEYWORDS
Capital Structure, TOT, POT, Determinants, Fixed Effect, Two-Step GMM Model

Cite This Paper in IEEE or APA Citation Styles
(a). IEEE Format:
[1] Sutanuka Shaw , Debdas Rakshit , "Determinants of Target Capital Structure and Adjustment Speed: Evidence from India," Universal Journal of Accounting and Finance, Vol. 9, No. 2, pp. 160 - 169, 2021. DOI: 10.13189/ujaf.2021.090203.

(b). APA Format:
Sutanuka Shaw , Debdas Rakshit (2021). Determinants of Target Capital Structure and Adjustment Speed: Evidence from India. Universal Journal of Accounting and Finance, 9(2), 160 - 169. DOI: 10.13189/ujaf.2021.090203.