The Determinants of Capital Structure of Indian Power Generation and Supply Firms: Panel Data Analysis
Sanjay Tupe *
Department of Economics, Banking at B. Y. K. College of Commerce, Nashik- 422005, India.
*Author to whom correspondence should be addressed.
Abstract
Present study uses firm level data of Indian power generation and supply for 1993-2004 for exploring the determinants of capital structure, results appeared from the Static Panel data model with firm and time effect are: variables size (SIZ) and tangibility (TAN) are positive and significant, profit (PRO) and cost (COS) are negative and significant except liquidity (LIQ) and growth opportunities (GRO) in the random effects with firm and time. These results show that power generation firms are big in size and command more tangible assets. Further, positive relationship between tangibility and debt variable supports the presence of major theories of finance such as Static Trade-off Theory, Information Asymmetry Theory, and Agency Cost Theory. Negative sign of profit (PRO) shows that power generation firms are not entirely dependent on debt. This justification validates the presence of Pecking Order Hypotheses. Negative sign of cost (COS) shows that interest paid on debt is treated as expenditure; hence, it brings down tax liability. The result on the relationship between growth opportunities and leverage are positive but not significant in both the effects. This relationship predicts that power generation firms are growing firms. and they need more funds to meet the investment opportunities.
Keywords: Capital structure, panel data, random effect, India, power sector firm
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References
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