ساختار سرمایه در بازار سهام در حال ظهور: مورد هند

This paper applies two alternative methods of estimation, viz., fully modified OLS (FMOLS) and generalized method of moments (GMM), to analyse the determinants of the capital structure of Indian firms using a panel of 1169 non-financial firms listed in either the Bombay Stock Exchange or the National Stock Exchange over the period 1995–2008. The results thus obtained are robust across the estimation methods. Among the three alternative theories of capital structure, the pecking order theory and the static trade-off theory both seem to explain Indian firms’ decisions. However, there is little evidence to support the agency cost theory.

Studies on capital structures of corporations have a long history, dating back to the nineteen fifties with the appearance of the works of Lintner (1956), Hirshleifer (1958) and Modigliani and Miller (1958). Theoretical and empirical studies that followed subsequently form an extremely large body of literature.1Modigliani and Miller (1958) showed that in the perfect financial market, under certain assumptions, the value of a company is independent of its financing choice. The well-known Modigliani–Miller Theorem is based on several assumptions: in a perfect capital market insiders and outsiders have symmetric information; no transaction cost or bankruptcy cost exists; equity and debt choice becomes irrelevant; and internal and external funds can be perfectly substituted. These assumptions later came under scrutiny and alternative theories emerged which suggested that capital structure might be relevant to the firm's value. The three main theories that came up subsequently are the static trade-off theory, the pecking order theory and the agency cost theory. In the static trade-off theory (also referred to as the tax based theory) a firm is viewed as setting a target debt to equity ratio and gradually moving towards it (Myers, 1984). In other words, this theory assumes that some form of optimal capital structure exists that can maximize the firm value while simultaneously minimize external claims to the cash flow stream. Such claims include bankruptcy cost, agency costs between shareholders and bondholders, and taxes. Thus a firm's target leverage is determined by the trade-off between interest tax shields of debt and the cost of financial distress. The pecking order theory (also referred to as the information asymmetry theory), developed by Myers and Majluf (1984) and Myers (1984), argues that firms choose to finance new investment, first by internal retained earnings, then by debt, and finally by equity. There is no concept of target capital structure for a firm in the pecking order theory. The explanation provided by Myers for the pecking order theory is based on the assumption that firm insiders have more information than outsiders. The agency cost theory (Jensen and Meckling, 1976) proposes that the optimal capital structure is determined by agency costs, which include the costs for both debt and equity issue. The costs related to equity issue may include: (a) the monitoring expenses of the shareholders (b) the bonding expenses of the managers and (c) ‘residual loss’ due to the divergence of managers’ decision from those of the shareholder's (Jensen and Meckling, 1976). On the other hand, debt issue increases the shareholders’ and managers’ incentives to invest in high-risk projects that yield high returns to the shareholders but increase the likelihood of failure that the bond holders have to share if it is realized. If debt-holders anticipate this, a high premium would be charged, which in turn would increase the cost of debt. Thus both equity and debt incur agency costs, and hence the optimal capital structure involves a trade-off between the two types of costs. The empirical studies on the capital structure choices of firms that started appearing in the eighties (Marsh, 1982, Jalilavand and Harris, 1984 and Titman and Wessels, 1988) and continued later are mostly based on data from developed countries. For example, Rajan and Zingales (1995) use data from G-7 countries, Bevan and Danbolt (2002) use data from the U.K. and Gaud et al. (2005) analysed data from Swiss companies. There have been a few studies that focus on developing countries as well. For example, Booth et al. (2001) considered data from ten developing countries (Brazil, Mexico, India, South Korea, Jordan, Malaysia, Pakistan, Thailand, Turkey and Zimbabwe), Chen (2004) uses data from China, Pandey (2001) analysed the data from Malaysia, and Wiwattanakantang (1999) uses data from Thailand, and so on. It may be noted here that the institutional structures of corporate firms of these developing countries are significantly different from that of the developed countries. Some methodological issues could be raised in this context. Most of these studies are based on panel data, and they use either a static model or a dynamic model, which simultaneously take care of the heterogeneity of firms and control for time effects. The models have been estimated by some of the following methods: fixed effects, random effects, pooled OLS and generalized method of moments (GMM). These methods correct for simultaneity bias using instrumental variables and control for unobserved firm-specific effects. However, they ignore the integration properties of the data. Therefore, it is not clear from these studies whether they estimate a long-run equilibrium relationship between leverage and its determinants or a spurious relationship which may lead to wrong conclusions. In this paper we apply some recently developed econometric techniques, viz., panel cointegration and panel estimation by fully modified OLS method, which correct for the shortcomings mentioned above, to provide better insights into the capital structure of non-financial firms in India in the post-liberalization period. The issue of capital structure has become very important in India, especially following the gradual initiation of the reform measures in the financial sector of India since July 1991. Financing choices of firms in India remained quite constrained till 1992. Access to the equity market was controlled by the Controller of Capital Issues which imposed severe restrictions on firms (Bhaduri, 2000). In May 1992, the Controller of Capital Issues was abolished and firms were allowed more freedom of access to the equity market. In 1994 the National Stock Exchange (NSE) was set up with nationwide stock trading and electronic display and clearing and settlement facilities. Due to the competitive pressure from the NSE, the Bombay Stock Exchange (BSE), the oldest stock exchange in India, also introduced electronic trading in 1995. Certain reform measures were initiated in the banking sector at the same time which enhanced the choice of financing by firms through debt too. These reform measures include, first, the deregulation of interest rates by the banking sector. Second, some liberalization measures have been taken on the cash reserve ratio (CRR) and statutory liquidity ratio (SLR). Before 1991, the CRR was as high as 25 per cent and SLR was 40 per cent. The CRR has come down to 5 per cent and SLR is 24 per cent at present. Third, since 1991, a number of foreign banks and private entrepreneurs have been invited to commence banking operation in India. The numbers of foreign and private banks operating in India increased from 21 and 23 in 1991 to 33 and 30 in 2004, respectively. Finally, in March 1996, uniform prudential norm was introduced in the lines of Basel Committee on Banking Supervision. Very few banks had a capital adequacy ratio of up to 8 per cent before 1991. By March 1998 only one of the 28 public sector banks fell short of this standard (Ahluwalia, 1999). Following the reform measures there were efforts to reduce the nonperforming assets (NPA) too, which came down to 1.3 per cent by the end of 2007–2008 (Government of India, 2009). As a result of these reform measures in the financial sector of India the capital structures of Indian firms have changed significantly. This provides an opportunity to study the changing nature of financing decision of Indian firms. The issues such as how the listed non-financial Indian firms finance their projects, and after liberalization what the determinants of these firms’ capital structure are, have been analysed in great detail in this study. The analysis is conducted using a balanced panel data pertaining to 1169 Indian non-financial firms for the period 1995–2008. Altogether 16,366 observations have been available for the analysis. Given that the financial reforms were initiated in 1991 it is expected that the impact of reforms would be felt only after a couple of initial years. Hence we begin our analysis from 1995. Our results show that both the pecking order theory and static trade-off theory are at work in the capital structure choice decisions of Indian firms. However, there is little evidence to support the validity of the agency cost theory. This paper is organized as follows. In Section 2, we provide an overview of the literature on the measures of leverage and the determinants of the capital structure. Descriptive statistics on data are provided in Section 3. Section 4 deals with the empirical analysis and we conclude in Section 5.

This paper presents an analysis of the determinants of capital structure choices of Indian firms based on the data on 1169 Indian non-financial firms, listed either in the Bombay Stock Exchange or in the National Stock Exchange, for the period 1995–2008 in a panel framework. The study contributes to the empirical literature on capital structure in three ways. First, it belongs to the limited number of studies which analyse empirically the capital structure choices of firms using data from an emerging stock market. Second, the study uses panel cointegration and the fully modified OLS (FMOLS) method of estimation as used by Pedroni (2000), which addresses both the problems of non-stationary regressors and simultaneity bias. Finally, the results from fully modified OLS are compared to the generalized method of moments (GMM), which allows us to control for unobserved firm-specific effects and the endogeneity problem, to check the consistency of the findings across estimation methods. We have made use of panel unit root and panel cointegration analyses to conclude that there is fairly strong evidence in favour of the hypothesis that the leverage of Indian non-financial firms has a long-run equilibrium relationship with its determinants, irrespective of model specifications. Our results from applications of both the FMOLS and GMM show that profitability, size of the firm and uniqueness (measured by expenditures on research and development over sales) are negatively related to leverage while tangibility and non-debt tax shields are positively related to leverage. Consistent with the predictions of the pecking order theory, we observe that low profit firms use more debt. One contradictory finding from the two methods of estimation is with respect to the variable GRTH2, measured as the percentage change of sales over the years. It turns out to be significant with a positive sign when we apply FMOLS, but becomes negative and insignificant if we apply GMM. For measuring growth opportunities we also use another measure, GRTH1, proxied by the percentage change in total assets. This variable turns out to be negatively significant in both FMOLS and GMM. As for most of the variables we get similar findings from the FMOLS and the GMM, we can conclude that the findings are not sensitive to the estimation methods. However, we have good reason to put much emphasis on the findings from FMOLS method as they represent a long-run equilibrium relationship and not a spurious relationship between leverage and its determinants. Thus, following FMOLS, firms with high profits, more growth opportunities (measured by GRTH1) and more spending on research and development tend to have relatively less debt in their capital structure. Our results, therefore, show that pecking order theory and static trade-off theory both are at work in the capital structure choice decisions of Indian firms. However, we find little evidence to support the agency cost theory. The study, on the whole, finds that the variables which are relevant for explaining capital structure choices of firms in the developed countries and in some developing countries are also relevant in the case of India, despite considerable differences in the institutional structures of the corporate firms. A little bit of elaboration on the nature of operation of the Indian corporate firms would further support our conclusion regarding the theoretical prediction of the capital structure of Indian firms in the post-reform period. About three-fourths of the largest companies in India are family business. There are about 400 business groups in India which are referred to as “Business Houses” with variations in size and levels of diversification. The literature on business groups and internal capital markets shows that companies affiliated to business groups are expected to have better access to capital markets (both internal and external) than what comparable non-group companies have (Schiantarelli and Sembenelli, 2000). Moreover, the costs due to informational asymmetries at debt renegotiations are smaller within a business group (Hoshi et al., 1990). Due to lower costs of financial distress, group members prefer debt to equity. Affiliation to business groups also increases access to external finances, e.g., banks and other financial institutions, as it enhances the group's reputation. Although theories argue that the preferred mode of financing of firms affiliated to business groups should be debt rather than equity, the picture in India after the reforms has been somewhat different in the sense that the most preferred source of financing has been the internal source, debt comes next, and finally equity. One possible reason could be the higher rate of interest that followed economic reforms, which in turn increased the cost of debt financing by the corporate firms. On the other hand, a number of scams in the stock market, viz., Harshad Mehta scam (1992), the Ketan Parikh scam (2001) and Satyam scam (2009), made equity a less reliable source of financing. It seems that even though the two stock market booms in 1993–1995 and 1999–2000 helped the firms raise funds cheaply, the firms shifted away from the market as the booms eventually died down. In the post-reform period, therefore, the shift from loans from banks and development financial institutions to equity as the source of finance for corporate firms has not been steady. In support of our statement we present Table 10 based on PROWESS database, which shows average funding sources over the period 1991–2004 for the two categories: all firms, combining the state sector and non-state sector together and the listed firms. It is evident that internal sources account for over one-third of all sources. The next important source of financing is the banks and financial institutions followed by equity. Therefore, on the basis of these figures one can conclude that the pecking order theory can largely explain capital structure in India in the post-reform period. However, the static trade-off theory also seems to be consistent with the data. Apart from our FMOLS results which reveal an inverse relationship between uniqueness and leverage, the GMM estimation shows that the speed of adjustment towards the target leverage ratio was quite high in India during our study period. Thus, these findings also support the validity of the static trade-off theory. Table 10. Sources of funds by Indian firms in percentage values based on PROWESS (average from 1990–1991 through 2003–2004). Sources of funds All firms Listed firms Internal sources 36.3 35.0 Capital markets of which 17.8 20.0 Equity 13.3 15.7 Debt 4.5 4.3 Banks/financial institutions 15.9 19.7 Group Companies/promoters/directors 0.9 0.3 Others (including current liabilities and provisions) 29.1 25.0 Source: Allen et al. (2006). Table options Our conclusion that there is little evidence to support the agency cost theory should be taken with some reservation. We know that the majority of the firms in India operate as family owned business. In this setup a family firm controls other firms, each of which controls yet other firms, which in turn controls yet more firms. Minority shareholders are not allowed to have majority of the votes in any firm in the group. Thus the essence of a family owned business is captured by the pyramidal structure discussed by La Porta et al. (1999) and Almeida and Wolfenzon (2006) among others. In this set up, the family controls each firm in the group and hence the so called agency problem between shareholders and managers as envisaged by Jensen and Meckling (1976) could be avoided. However, a different kind of agency problem emerges within this set up, when managers act solely for one shareholder, the family, and almost ignore other shareholders (Morck et al., 2000 and Bebchuk et al., 2000). Discussions on the agency problem of business group firms operating in India remain incomplete if we do not mention “self-dealing” or “tunneling”, which is another way of misappropriating the wealth of minority shareholders. Firms controlled by the same family often get goods, services or financing from each other. By doing this at artificially high prices, the group can transfer profits from the buyer to the seller firm. Similarly, at artificially low prices transfers of profits from the seller to the buyer firm occur. In this way the controlling family gains by transferring large amounts of wealth from firms low in the pyramidal structure to firms at the top.