Vol: 3, Issue: 3 2013

Page: 20-39

Corporate Capital Capital Structure Practices

Naresh Vashist

Received Date: 2013-05-13

Accepted Date: 2013-06-13

Published Date: 2013-07-14

This research paper is the study of the corporate investment in Information Technology Industry and in the Banking Industry. The study examines the trends and determinants of capital structure in Indian Banking and IT industries from the perspective of empirical capital structure literature. There are several fundamental disparities between financial and non financial firms that contribute to large difference in their capital structure position. However, the theory of Corporate Capital Structure that evolves in recent years provides a useful framework for analyzing bank capital structure. Two independent variables, specifically, Profitability and Growth Opportunities are the chief fragments that generally direct capital structure decisions in this industry. Nevertheless, these capital structure decisions are not straightforward. Four independent variables, specifically, Tangibility of assets, Size of the company, Volatility and Non debt tax shield are the major aspects directing capital structure decisions in the industry. The regression coefficient of size of company is showing significant impact of this variable on decisions related to capital structure of Indian IT industry. However, it has negative relation with capital structure. Present study largely confirms the results of earlier Indian studies vis-à-vis IT Industry but this is not the case with Banking Industry; Banking Industry results confirm the results of research carried out in developed countries.

References

• Allen, F., E Carletti and R. Marquez (2006), “Credit market competition and capital regulation”, Working Paper, University of Pennsylvania.
• Ashcraft, A (2001), “Do Tougher Bank Capital Requirements Matter? New Evidence from the Eighties”, working paper, Federal Reserve Bank of New York.
• Barclay, B J and C W Smith JR (1995), “The Maturity Structure of Corporate Debt”, Journal of Finance, June, pp. 609-631.
• Barclay, M., and C. Smith (2005), “The Capital Structure Puzzle: The Evidence Revisited”, Journal of Applied Corporate Finance, 17, pp. 8-17.
• Barrios, V., and J. Blanco (2003), “The Effectiveness of Bank Capital Adequacy Regulation: A Theoretical and Empirical Approach”, Journal of Banking and Finance, 27, pp 1935-1958.
• Barth, J., G. Caprio, and R. Levine (2005). Rethinking Bank Regulation: Till Angels Govern. Cambridge University Press, Cambridge and New York.
• Berger, A., R. De Young and M. Flannery (2007), “Why do large banking organizations hold somuch capital?”, Working Paper, Board of Governors, FDIC and University of Florida.
• Bevan, A. and Danbolt, J. (2000), “Dynamics in the determinants of capital structure in the UK”,Working Paper, University of Glasgow.
• Bhole, L.M. and Mahakud, Jitendra, (2004), “Trends and Determinants of Corporate capital Structure in India: A Panel Data Analysis”, Finance India, Vol. XVIII, No. 1, March, pp. 37-55.
• DeAngelo, A., and R. Masulis (1980), “Optimal Capital Structure under Corporate and Personal Taxation”, Journal of Financial Economics, 8, pp. 3-29.
• Drobetz, Wolfgang and Fix, Roger (2003), “What are the Determinants of the Capital Structure: Some Evidence for Switzerland”, Working paper No. 4/03, WWZ/Department of Finance.
• Easterbrook, Frank H. (1984), “Two Agency-cost Explanations of Dividends”, American Economic Review, 74, pp 650-659,
• Fama, Eugene F. (1980), “Banking in the Theory of Finance”, the Journal of Monetary Economics, 6: 39 – 57.
• Flannery, M. (1994), “Debt ;maturity and the deadweight cost of leverage: Optimally financing banking firms”, American Economic Review, 84: 320-331.
• Flannery, M. and K. Rangan 2006. Partial adjustment toward target capital structures. Journal of Financial Economics, 79: 469-506.
• Grah;am, J., and C. Harvey, (2001), “The Theory and Practice of Corporate Finance: Evidencefrom the Field”, Journal of Financial Economics 60, 187-243.
• Gropp, Reint and Heider, Florian (200d), “The determinants of capital structure: Some evidence from banks. Discussion Paper No. 08-015, Zew Research, ftp://ftp.zew.de/pub/zew-docs/dp/dp08015.pdf, Accessed on March 20, 2008.
• Harris, M., and A. Raviv (1991), “The Theory of the Capital Structure”, Journal of Finacne, 46,pp. 297- 355.
• Jensen, M., and W. Meckling (1976), “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure”, Journal of Financial Economics, 3, pp, 305-360.
• Jensen, Michael C., (1986), “Agency Costs of Free Cash Flow, Corporate Finance, andTakeovers”, American Economic Review, 76, pp. 323-329.
• Marques, Manuel O. and Santos, Mario C. (2003), “Capital Structure Policy and determinants: Evidence from the Portuguese Banking Industry”, http://www.fep.up.pt/investigacao/cempre/actividades/sem_fin/sem_fin_01/PAPERS_PDF/paper_sem_fin_ 14nov03.pdf Accessed on June 24, 2008.
• Myers, S. (1977), “The Determinants of Corporate Borrowing. Journal of finance, 32, pp. 147- 175.
• Myers, S. (1984), “The Capital Structure Puzzle”, Journal of Finance, 39, pp. 575-592.
• Myers, S. and R. Rajan (1998), “The paradox of liquidity”, Quarterly Journal of Economics, 113,pp. 733- 771.
• Myers, S., and N. Majluf (1984), “Corporate Financing and Investment Decisions When Firms Have Information Investors Do Not Have”, Journal of Financial Economics, 13, pp 187- 222.
• Pandey, I.M. and Chotigeat, T. (2006), “The Capital Structure of Asian Firms”, Global Business and Finance Review, Spring, pp 63-77.
• Pringle, John H (1974), “The Capital Decisions in Commercial Banks” Journal of Finance, 29, pp779-95.
• Rajan, R., and L. Zingales, 1995, “What Do We Know about Capital Structure? Some Evidence from International Data”, Journal of Finance 50, pp 1421-1460.
• Ross, S., (1977), “The Determination of Financial Structure: The Incentive Signalling Approach”, Bell Journal of Economics 8, pp 23-40.
• Sahoo, Sudhansu Mohan and Omkarnath, G, (2005), “Capital Structure of Indian Private Corporate Sector: An Empircal Analysis”, The ICFAI Journal of Applied Finance, November, pp.41-56.
• Taggart, Robbert A, Jr and Greenbaum, Stuart (1978), “Bank Capital and Public Regulation”. Journal of Money, Credit and Banking, 10, pp. 158-69.
• Titman, S., and R. Wessels, (1988), “The Determinants of Capital Structure Choice”, Journal of Finance, 43, pp. 1-19.