The IUP Journal of Applied Finance
Dynamics of Corporate Capital Structure Choices and Intervening Forces: Indian Evidence
Article Details
| Pub. Date | :Oct, 2019 |
|---|---|
| Product Name | : The IUP Journal of Applied Finance |
| Product Type | : Article |
| Product Code | : IJAF31910 |
| Author Name | : Paritosh Chandra Sinha |
| Availability | : YES |
| Subject/Domain | : Finance |
| Download Format | : PDF Format |
| No. of Pages | : 49 |
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Abstract
How do the firms revise their capital structure dynamics at stake? This study hypothesizes that the corporate capital structure dynamics spin at changes in the intervening forces. It shows the presence of intervening forces with the Indian firms’ financing data. It methodologically uses the Partial Adjustment Models (PAM) in exploring firms’ optimal dynamic adjustments and extends the PAM. It shows backward and forward adjustments at separating and semi-separating equilibriums for both high-value and low-value firms. The study also reveals that a pooling equilibrium with firms’ dynamic adjustment speeds can be otherwise influenced by the standard errors in separating and semiseparating equilibriums. Firms’ choice of Dynamic Adjustment Speed (DAS) is neither a generalized singleton variable, nor does it spin in similar direction across firms and intervening forces. In dynamic financing choices, DASs are divergent at firms’ forward and backward adjustments across high-value and low-value firms. Firms’ divergent adjustments depend on the presence of macroeconomic variables, nature (forward or backward) of adjustments, and firm-specific financing and non-financing expectation as well. The sample firms plausibly spin to divergent financing and non-financing motives at their dynamic provisions for expected changes in the exogenous variables. Firms’ dynamic financing and non-financing motives intervene in their divergent DASs. The effects are transitory and temporary but deliberate at their deviations from the target capital structures. The study confirms the spin effects of intervening forces rather than labeling them as random noise only.
Description
How do the firms revise their capital structure dynamics at stake? In corporate finance, the query is partially addressed in a few studies like De Fiore and Uhlig (2015) and Ariff et al. (2008). At its core, the dynamics of firms’ capital structure choices spin at changes in their intervening forces. This theoretical proposition motivates us in studying intervening forces that derive dynamics in firms’ capital structure decisions. The global financial crisis of 2008- 09 has also moved the present author in exploring the effects of the intervening forces on dynamics of capital structure choices.
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