Title: Role of risk characteristics on capital structure adjustments: evidence from India

Authors: Rajni Joshi; Asheesh Pandey; Karamjeet Singh

Addresses: Fortune Institute of International Business, Vasant Vihar, New Delhi, India ' Indian Institute of Foreign Trade, New Delhi, India ' University Business School, Panjab University, Chandigarh, India

Abstract: We examine whether the risk characteristics have any role in explaining rate of adjustment speed (RAS) towards target debt ratio of firms listed in BSE 500 index. Using generalised methods of moments (GMM) estimation technique we show that macroeconomic risk and micro risk significantly affects the RAS of firms towards its target debt level evidencing that both micro and macro risk affects the rate of adjustment speed of capital structure differently. We observe variations in RAS across firms and over times due to risk characteristics. The results bear important implications for academia and managers as well as regulators. For academic, we provide possibly the first out of sample study for India, which contributes to the existing body of literature. Managers must identify the barriers involved in achieving target debt ratio, which would promote the growth of the firms.

Keywords: dynamic capital structure; speed of adjustment; GMM estimation; micro-risk characteristics; macro-risk characteristics; India.

DOI: 10.1504/IJPSPM.2023.135038

International Journal of Public Sector Performance Management, 2023 Vol.12 No.4, pp.571 - 583

Received: 17 Jan 2020
Accepted: 21 Jun 2020
Published online: 28 Nov 2023 *

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