Business Factions and Combination of Capital of Indian Firms
Nidheesh K. B.
This paper combines two rival threads of the business finance literature: the first filament relates to the firm’s capital structure decisions, with stress on the pecking order theory and the trade off theory; the second filament relates to business clusters, particularly in the context of emerging markets. The blend is then used to identify a basic model to buttress the capital structure decisions of group-associated and non-group firms. In universal, the results corroborate that affiliated firms are significantly different from their independent counterparts. In terms of their capital structure decision the results show that the average leverage of affiliated firms is higher than the equivalent measures for non-affiliated firms. In terms of the main determinants of capital structure decisions, we found that group association has a strong result on capital structure decisions such that group profitability has a sturdy negative effect on the leverage decisions of affiliated firms. This may be that profitable groups create internal capital markets to avoid having to resort to expensive external finance. Researchers also find that size, as well as growth, does not matter for the capital structure of group-affiliated firms, whereas these factors are critical for the capital structure decisions of independent firms. In addition, only liquidity has a positive force on the capital structure decisions of affiliated firms while intangibility and profitability, group debt and group size has a negative effect. However, researchers do not find any significant differences between group and non-group firms in terms of the impact of age and stock illiquidity on capital structure decisions.
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