Published Online:July 2024
Product Name:The IUP Journal of Accounting Research & Audit Practices
Product Type:Article
Product Code:
Author Name:Mohammadali Momin, Dhimen Jani and Bhojak Nimesh
Availability:YES
Subject/Domain:Finance
Download Format:PDF
Pages:26
The paper examines the linear relationship between various debts of companies and their capital structure by applying regression model. The sample comprises the balanced dataset of 21 Indian companies registered on the Bombay Stock Exchange (BSE), whose shares were traded most on Sensex during the Global Economic of 2008. Moreover, the study investigates whether the capital structure of companies was affected after the economic crisis. The empirical result supports the existence of short-term, long-term, and total debt. According to well-known capital structure theories, debt affects the capital structure and its determinants. Furthermore, the findings have managerial implications for debts. A high level of debt affects companies’ profitability, financial distress and tax rate.
Capital structure is significant to the cost of capital benefit through weighted average cost in an emergency financial crisis. A financial crisis changes the financial behavior of investors who invest in equity and debt. As per corporate finance theory, capital structure has many significant determinants (Bajaj et al., 2021). A capital structure decision involves the proportion of equity and debt for cost benefit (Chadha and Seth, 2021). Various researchers have examined capital structure decisions in empirical studies and reviewed capital structure determinants (Chakrabarti and Chakrabarti, 2019; Hidayat et al., 2020; Lim et al., 2020; and Jin, 2021). As per our belief, no one has identified the impact of financial crisis on capital decision, yet it is significant to know the changes in capital structure determinants due to a financial crisis. The study aims to identify the changes in the capital structure before and after the financial crisis of 2008. During the said financial crisis, investors exhibited risk aversion behavior (Susilawati and Suryaningsih, 2020), which meant they did not invest in equity, and financial institutions provided less debt (Tripathi, 2021).