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Capital Structure of Indian Corporate: Changing Trends

Background: Since the liberalization of Indian economy, there has been an upsurge in research on company finance, particularly aimed at understanding how companies finance their activities and why they finance their activities in these specific ways. In practice, it is observed that finance managers use different combinations of debt and equity. The present study is aimed at to find out the trend and pattern of financing by the Indian companies before and after the liberalization. The sheer size and diversity of the Indian capital market are, on their own, more than sufficient reasons for investigating Indian company financing in depth. In addition, the liberalization of the market offers a unique laboratory for evaluating the development of companies as liberalization proceeds. In this study, we attempt to compare and contrast the capital structure of Indian corporate before and after liberalization. Going beyond this, we will examine the impact of liberalization and changes if any noticed due to liberalization, on the capital structure of Indian companies. Effort is also made to analyze the capital structure decisions of Indian companies in the recent past.Objectives: The present study is aimed at to examine the changing trend of the capital structure financing pattern of Indian companies during pre and post liberalized era as well as in the recent past.Methodology: We propose to analyze the financing pattern of 300 Indian private sector companies, comprising of 20 different sectors for the period 1999-2000 to 2007-2008, duly grouping them on the basis of their region, size, age, and nature etc.Findings/Results: In this study, we have tried to find out the ways in which different companies at different times and in different institutional environments have financed their operations; and to identify possible implications of these financing patterns. The central issue we have addressed is to examine the trend of changes in the capital structure of Indian companies and impact of liberalization on the capital structure decisions of Indian companies. We have also tried to find out the factors that determine the financing pattern of capital structure of Indian companies, particularly in the private sector.